Annual Financial Report 2021
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Annual Financial Report
Contents Page
Board of Directors and Executives 1
Forward Looking Statements and Notes 2
Directors' Report of Bank of Cyprus Holdings Public Limited Company 3
Consolidated Financial Statements of Bank of Cyprus Holdings Group 52
Independent Auditor’s Report to the Members of Bank of Cyprus Holdings Public Limited
Company on the Consolidated Financial Statements and the Company Financial Statements 243
Financial Statements of Bank of Cyprus Holdings Public Limited Company 254
Annual Corporate Governance Report 271
Additional Risk and Capital Management Disclosures 330
Definitions and explanations on Alternative Performance Measures Disclosures 356
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Board of Directors and Executives
as at 29 March 2022
Board of Directors of Bank of Cyprus
Holdings Public Limited Company
Efstratios-Georgios Arapoglou
CHAIRMAN
Lyn Grobler
VICE-CHAIRPERSON
Arne Berggren
Dr. Michael Heger
Panicos Nicolaou
Ioannis Zographakis
Maria Philippou
Maksim Goldman
Nicos Sofianos (appointed on 14 May 2020 - approved by ECB on 26 February 2021)
Paula Hadjisotiriou
Constantine Iordanou (appointed on 28 September 2020 - approved by ECB on 29 November
2021)
Eliza Livadiotou (appointed on 28 September 2020 - approved by ECB on 6 October 2021)
Executive Committee
Panicos Nicolaou
CHIEF EXECUTIVE OFFICER
Dr. Charis Pouangare
DEPUTY CHIEF EXECUTIVE OFFICER & CHIEF OF BUSINESS
Eliza Livadiotou
EXECUTIVE DIRECTOR FINANCE & LEGACY
Demetris Th. Demetriou
CHIEF RISK OFFICER
Irene Gregoriou
ACTING EXECUTIVE DIRECTOR PEOPLE & CHANGE
George Kousis
ACTING EXECUTIVE DIRECTOR TECHNOLOGY & OPERATIONS
Company Secretary
Katia Santis
Legal Advisers as to matters of Irish
Law
Arthur Cox
Legal Advisers as to matters of
English and US Law
Sidley Austin LLP
Legal Advisers as to matters of
Cypriot Law
Chryssafinis & Polyviou LLC
Statutory Auditors
PricewaterhouseCoopers
One Spencer Dock
North Wall Quay
Dublin 1
D01 X9R7
Ireland
Registered Office
1
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Forward Looking Statements and Notes
This document contains certain forward looking statements which can usually be identified by terms used
such as 'expect', 'should be', 'will be' and similar expressions or variations thereof or their negative
variations, but their absence does not mean that a statement is not forward looking. Examples of forward-
looking statements include, but are not limited to, statements relating to the Bank of Cyprus Holdings
Group's (the Group) near term and longer term future capital requirements and ratios, intentions, beliefs or
current expectations and projections about the Group’s future results of operations, financial condition,
expected impairment charges, the level of the Group’s assets, liquidity, performance, prospects, anticipated
growth, provisions, impairments, business strategies and opportunities. By their nature, forward-looking
statements involve risk and uncertainty because they relate to events, and depend upon circumstances,
that will or may occur in the future. Factors that could cause actual business, strategy and/or results to
differ materially from the plans, objectives, expectations, estimates and intentions expressed in such
forward-looking statements made by the Group include, but are not limited to: general economic and
political conditions in Cyprus and other European Union (EU) Member States, interest rate and foreign
exchange fluctuations, legislative, fiscal and regulatory developments and information technology, litigation
and other operational risks, adverse market conditions, the impact of outbreaks, epidemics or pandemics,
such as the COVID-19 pandemic and ongoing challenges and uncertainties posed by the COVID-19
pandemic for businesses and governments around the world. The Russian invasion of Ukraine has led to
heightened volatility across global markets and to the coordinated implementation of sanctions on Russia,
Russian entities and nationals. The Russian invasion of Ukraine has already caused significant population
displacement, and as the conflict continues, the disruption will likely increase. The scale of the conflict and
the speed and extent of sanctions, as well as the uncertainty as to how the situation will develop, may have
significant adverse effects to the market and macroeconomic conditions, including in ways that cannot be
anticipated. This creates significantly greater uncertainty about forward-looking statements. Should any one
or more of these or other factors materialise, or should any underlying assumptions prove to be incorrect,
the actual results or events could differ materially from those currently being anticipated as reflected in
such forward looking statements. The forward-looking statements made in this document are only
applicable as at the date of publication of this document. Except as required by any applicable law or
regulation, the Group expressly disclaims any obligation or undertaking to release publicly any updates or
revisions to any forward looking statement contained in this document to reflect any change in the Group’s
expectations or any change in events, conditions or circumstances on which any statement is based.
Non-IFRS performance measures
Bank of Cyprus Holdings Public Limited Company's (the Company) management believes that the non-IFRS
performance measures included in this document provide valuable information to the readers of the Annual
Financial Report as they enable the readers to identify a more consistent basis for comparing the Group’s
performance between financial periods and provide more detail concerning the elements of performance
which management are directly able to influence or are relevant for an assessment of the Group. They also
reflect an important aspect of the way in which the operating targets are defined and performance is
monitored by the Group’s management. However, any non-IFRS performance measures in this document
are not a substitute for IFRS measures and readers should consider the IFRS measures as the key measures
of the 31 December position. Refer to ‘Definitions and explanations on Alternative Performance Measures
Disclosures’ on pages 356 to 370 of the Annual Financial Report for the year ended 31 December 2021 for
further information, reconciliations with Consolidated Financial Statements and calculations of non-IFRS
performance measures included throughout this document and the most directly comparable IFRS
measures.
The Annual Financial Report for the year ended 31 December 2021 is available on the Group’s website
www.bankofcyprus.com (Group/Investor Relations) (the Group's website).
The Annual Financial Report 2021 of the Group is originally issued in English. The Greek translation of the
Annual Financial Report 2021 will be available on the Group’s website from 30 March 2022. In case of a
difference or inconsistency between the English document and the Greek document, the English document
prevails.
2
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
The Board of Directors submits to the shareholders of Bank of Cyprus Holdings Public Limited Company (the
Company) their Directors' Report together with the audited Consolidated Financial Statements
(Consolidated Financial Statements) and Financial Statements of the Company for the year ended 31
December 2021.
The Annual Financial Report relates to the Company and together with its subsidiaries the Group, which was
listed on the London Stock Exchange (LSE) and the Cyprus Stock Exchange (CSE) as at 31 December 2021.
Activities
The Company is the holding company of the Group and the sole shareholder of Bank of Cyprus Public
Company Ltd (BOC PCL). The principal activities of BOC PCL and its subsidiary companies involve the
provision of banking, financial services, insurance services and management and disposal of property
predominately acquired in exchange of debt.
All Group companies and branches are set out in Note 51 to the Consolidated Financial Statements. The
Group has established branches in Greece. Acquisitions and disposals made during the year 2021 are
detailed in Note 51 to the Consolidated Financial Statements.
Group financial results on the underlying basis
Commentary on underlying basis
The financial information presented below provides an overview of the Group financial results for the year
ended 31 December 2021 on the ‘underlying basis’ which management believes best fits the true
measurement of the performance and position of the Group, as this presents separately the exceptional and
one-off items. Reconciliations between the statutory basis and the underlying basis are included in section
‘Unaudited reconciliation of the Consolidated Income Statement for the year ended 31 December 2021
between statutory and underlying basis’ below and in ‘Definitions and explanations on Alternative
Performance Measures Disclosures’ of this Annual Financial Report for the year ended 31 December 2021 to
facilitate the comparability of the underlying basis to the statutory information.
References to pro forma figures and ratios as at 31 December 2021 refer to Projects Helix 3 and Sinope (as
explained in the paragraphs further below). All relevant figures are based on 31 December 2021 results,
unless otherwise stated. Numbers on a pro forma basis are based on 31 December 2021 underlying basis
figures and are adjusted for Projects Helix 3 and Sinope, and assume their completion, which remains
subject to customary regulatory and other approvals. As at 31 December 2021, the portfolios of loans, as
well as the real estate properties included in Project Helix 3 and Project Sinope, were classified as disposal
groups held for sale. References to pro forma figures and ratios as at 31 December 2020 refer to Project
Helix 2 (as explained in the paragraphs further below). As at 31 December 2020, the portfolios of loans
included in Project Helix 2 were classified as a disposal group held for sale.
Where numbers are provided on a pro forma basis, this is stated and referred to as ‘Pro forma for held for
sale’ or ‘Pro forma for HFS’.
The below definitions are used in the commentary that follows the presentation of the underlying basis
financial information:
NPE sales: NPE sales refer to sales of NPE portfolios completed, as well as contemplated sale transactions,
irrespective of whether or not they meet the held for sale classification criteria at the reporting dates.
Project Helix 3: Project Helix 3 refers to the agreement the Group reached in November 2021 with funds
affiliated with Pacific Investment Management Company LLC (‘PIMCO’), for the sale of a portfolio of loans
with gross book value of €568 million, as well as real estate properties with book value of approximately
€120 million as at 30 September 2021, the reference date.
Project Sinope: Project Sinope refers to the agreement the Group reached in December 2021 for the sale of
a portfolio of loans with gross book value of €12 million, as well as properties in Romania with carrying
value €0.6 million, as at 31 December 2021.
Project Helix 2: Project Helix 2 refers to the agreement the Group reached in August 2020 with funds
affiliated with PIMCO, for the sale of a portfolio of loans with gross book value of €0.9 billion (Helix 2
Portfolio A), as well as to the agreement the Group reached with PIMCO in January 2021 for the sale of an
additional portfolio of loans with gross book value of €0.5 billion (Helix 2 Portfolio B). Project Helix 2 sale
was completed in June 2021.
3
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Group financial results on the underlying basis (continued)
Further details of the transactions are provided in ‘Loan portfolio quality’ under the 'Balance Sheet Analysis'
section below.
The main financial highlights for the year ended 31 December 2021 are set out below:
Unaudited Consolidated Income Statement on the underlying basis
€ million 2021
1
2020
1,2
Net interest income 296 330
Net fee and commission income 172 144
Net foreign exchange gains and net gains on financial instruments
transactions and disposal/dissolution of subsidiaries and associates
24 15
Insurance income net of claims and commissions 61 56
Net gains from revaluation and disposal of investment properties and on
disposal of stock of properties
13 7
Other income
15 15
Total income
581 567
Staff costs (202) (195)
Other operating expenses (145) (145)
Special levy on deposits and other levies/contributions
(36) (33)
Total expenses
(383) (373)
Operating profit
198 194
Loan credit losses (66) (149)
Impairments of other financial and non-financial assets (36) (42)
Net reversal/(provisions) for litigation, claims, regulatory and other matters
2 (7)
Total loan credit losses, impairments and provisions
(100) (198)
Profit/(loss) before tax and non-recurring items
98 (4)
Tax (5) (8)
(Profit)/loss attributable to non-controlling interests
(2) 3
Profit/(loss) after tax and before non-recurring items (attributable
to the owners of the Company)
91 (9)
Advisory and other restructuring costs-organic
(22) (10)
Profit/(loss) after tax - organic (attributable to the owners of the
Company)
69 (19)
Provisions/net loss relating to NPE sales
3
(7) (120)
Restructuring and other costs relating to NPE sales
3
(16) (26)
Restructuring costs - Voluntary Staff Exit Plan (VEP)
(16) (6)
Profit/(loss) after tax (attributable to the owners of the Company)
30 (171)
Key Performance Ratios
4
Net interest margin
%1.45 %1.84
Cost to income ratio
%66 %66
Cost to income ratio excluding special levy on deposits and other
levies/contributions
%60 %60
Operating profit return on average assets
%0.8 %0.9
Basic earnings/(losses) per share attributable to the owners of the Company
(€ cent)
6.66 (38.45)
Basic earnings/(losses) after tax and before non-recurring items per share
attributable to the owners of the Company (€ cent)
5
20.50 (2.12)
Return on tangible equity (ROTE) after tax and before non-recurring items
6
%5.5 %(0.5)
1
The financial information is derived from and should be read in conjunction with the accompanied
Consolidated Financial Statements.
2
Represented for the DTC levy of €3 million in financial year 2020 which is now included in 'Special levy on
deposits and other levies/contributions' in line with current year presentation.
4
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Group financial results on the underlying basis (continued)
Unaudited Consolidated Income Statement on the underlying basis (continued)
3
‘Provisions/net loss relating to NPE sales' refer to the net loss on transactions completed during the year
and the net loan credit losses on transactions under consideration, whilst 'Restructuring and other costs
relating to NPE Sales' refer mainly to the costs relating to these trades.
4
Including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale'.
5
As of 30 June 2021, management monitors ‘Basic earnings/(losses) per share attributable to the owners of
the Company’ calculated using ‘Profit/(loss) after tax and before non-recurring items (attributable to the
owners of the Company)’, rather than ‘Profit/(loss) after tax – organic (attributable to the owners of the
Company)’ which was previously the case, as management believes it is a more appropriate measure of
monitoring recurring performance, as it excludes ‘Advisory and other restructuring costs – organic’ which do
not relate to the underlying or recurring business of the Group as a banking and financial services
institution, but mainly to the cost of the Tier 2 Capital Notes tender offer of approximately €12.5 million, as
well as certain costs relating to restructuring activities BOC PCL has associated with the organic reduction of
NPEs, which have been decreasing as the level of NPEs is being reduced.
6
‘Return on tangible equity (ROTE) after tax and before non-recurring items (annualised)’ is calculated as
the profit after tax and before non-recurring items (annualised) divided by the shareholders’ equity minus
intangible assets.
Unaudited Consolidated Balance Sheet on the underlying basis
€ million 2021
1
2020
1
Cash and balances with central banks 9,231 5,653
Loans and advances to banks 292 403
Debt securities, treasury bills and equity investments 2,139 1,913
Net loans and advances to customers 9,836 9,886
Stock of property 1,112 1,350
Investment properties 118 128
Other assets 1,876 1,550
Non-current assets and disposal groups held for sale
359 631
Total assets
24,963 21,514
Deposits by banks 457 392
Funding from central banks 2,970 995
Customer deposits 17,531 16,533
Loan stock 643 272
Other liabilities
1,281 1,247
Total liabilities
22,882 19,439
Shareholders’ equity 1,839 1,831
Other equity instruments
220 220
Total equity excluding non-controlling interests 2,059 2,051
Non-controlling interests
22 24
Total equity
2,081 2,075
Total liabilities and equity
24,963 21,514
5
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Group financial results on the underlying basis (continued)
Unaudited Consolidated Balance Sheet on the underlying basis (continued)
Key Balance Sheet figures and ratios
2
2021
(proforma)
2021 2020
Gross loans (€ million) 10,282 10,856 12,261
Allowance for expected credit losses (€ million) 467 792 1,902
Customer deposits (€ million) 17,531 17,531 16,533
Loans to deposits ratio (net) %56 %57 %63
NPE ratio %7.5 %12.4 %25.2
NPE coverage ratio %61 %59 %62
Leverage ratio %7.6 %7.6 %8.8
Capital ratios and risk weighted assets
2
Common Equity Tier 1 (CET1) ratio (transitional for
IFRS 9)
3
15.76% 15.14% 14.80%
Total capital ratio 20.78% 20.01% %18.35
Risk weighted assets (€ million) 10,344 10,694 11,636
1
The financial information is derived from and should be read in conjunction with the accompanied
Consolidated Financial Statements.
2
Including the NPE portfolios classified as 'Non-current assets and disposal groups held for sale', where
relevant.
3
The CET1 fully-loaded ratio as at 31 December 2021 amounts to 13.75% and 14.32% pro forma for HFS
compared to 12.94% as reported and 13.26% pro forma for Helix 2 (Portfolios A and B) as at 31 December
2020.
Unaudited reconciliation of the Consolidated Income Statement for the year ended 31 December
2021 between the statutory and underlying basis
€ million
Underlying
basis
NPE
sales
Other
Statutory
basis
Net interest income 296 - - 296
Net fee and commission income 172 - - 172
Net foreign exchange gains and net gains/(losses) on financial instrument
transactions and disposal/dissolution of subsidiaries and associates
24 - (30) (6)
Insurance income net of claims and commissions 61 - - 61
Net gains from revaluation and disposal of investment properties and on disposal of
stock of properties
13 (1) - 12
Other income
15 - - 15
Total income
581 (1) (30) 550
Total expenses
(383) (16) (23) (422)
Operating profit
198 (17) (53) 128
Loan credit losses (66) 13 17 (36)
Impairments of other financial and non-financial assets (36) (19) - (55)
Net reversals of provisions for litigation, claims, regulatory and other matters
2 - (2) -
Profit/(loss) before tax and non-recurring items
98 (23) (38) 37
Tax (5) - - (5)
Profit attributable to non-controlling interests
(2) - - (2)
Profit/(loss) after tax and before non-recurring items (attributable to the
owners of the Company)
91 (23) (38) 30
Advisory and other restructuring costs-organic
(22) - 22 -
Profit/(loss) after tax - organic* (attributable to the owners of the
Company)
69 (23) (16) 30
Provisions/net loss relating to NPE sales (7) 7 - -
Restructuring and other costs relating to NPE sales (16) 16 - -
Restructuring costs – Voluntary Staff Exit Plan (VEP)
(16) - 16 -
Profit after tax (attributable to the owners of the Company)
30 - - 30
6
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Group financial results on the underlying basis (continued)
Unaudited reconciliation of the Consolidated Income Statement for the year ended 31 December
2021 between the statutory and underlying basis (continued)
*This is the profit after tax (attributable to the owners of the Company), before provisions/net loss relating
to NPE sales, related restructuring and other costs, and restructuring costs related to the Voluntary Staff
Exit Plan (VEP).
The reclassification differences between the statutory basis and the underlying basis mainly relate to the
impact from ‘non-recurring items’ and are explained as follows:
NPE sales
Total expenses include restructuring costs of €14 million and other expenses of €2 million relating
to the agreements for the sale of portfolios of NPEs and are presented within ‘Restructuring and
other costs relating to NPE sales’ under the underlying basis.
Loan credit losses under the statutory basis include the loan credit losses relating to Project Helix
2 of approximately €1.5 million, reversal of loan credit losses relating to Project Helix 3 of €28
million and an amount of €14 million which represents the effect of discounting the deferred
consideration receivable from Project Helix 2, and are disclosed under non-recurring items within
‘Provisions/net loss relating to NPE sales’ under the underlying basis.
‘Net gains from revaluation and disposal of investment properties and on disposal of stock of
properties’ include a revaluation loss of €1 million relating to investment properties of Project
Helix 3 and are presented within ‘Provisions/net loss relating to NPE sales’ under the underlying
basis.
‘Impairments of other financial and non-financial assets’ under the statutory basis include an
impairment loss of €19 million relating to stock of properties of Project Helix 3 and are presented
within ‘Provisions/net loss relating to NPE sales’ under the underlying basis.
Other reclassifications
Net losses on loans and advances to customers at FVPL of approximately €17.5 million included
in ‘Loan credit losses’ under the underlying basis are included in ‘Net losses on financial
instrument transactions and disposal/dissolution of subsidiaries and associates’ under the
statutory basis. Their classification under the underlying basis is done in order to align their
presentation with the loan credit losses on loans and advances to customers at amortised cost.
Net loss on the early redemption of subordinated loan stock of approximately €12.5 million
included in 'Net losses on financial instrument transactions and disposal/dissolution of
subsidiaries and associates' under the statutory basis is included in 'Advisory and other
restructuring costs organic' under the underlying basis, since it represents a one-off item.
Advisory and other restructuring costs of approximately €9 million included in 'Other operating
expenses' under the statutory basis are separately presented under the underlying basis since
they comprise mainly fees to external advisors in relation to customer loan restructuring
activities.
Reversals net of provisions for litigation, claims, regulatory and other matters amounting to
approximately €2 million included in 'Other operating expenses' under the statutory basis, are
separately presented under the underlying basis, as provisions for litigation, claims, regulatory
and other matters (and reversals thereon) are presented together with impairment of financial
and non-financial assets, below operating profit.
Total expenses under the statutory basis include restructuring costs relating to the voluntary staff
exit plan (VEP) of approximately €16 million and are separately presented under the underlying
basis, since they represent one-off items.
Balance Sheet Analysis
Capital Base
Total equity excluding non-controlling interests totalled €2,059 million at 31 December 2021, compared to
€2,051 million at 31 December 2020. Shareholders’ equity totalled €1,839 million at 31 December 2021,
compared to €1,831 million at 31 December 2020.
The Common Equity Tier 1 capital (CET1) ratio on a transitional basis stood at 15.14% as at 31 December
2021 and 15.76% pro forma for held for sale portfolios (referred to as ‘pro forma for HFS’), compared to
14.80% as at 31 December 2020 (and 15.16% pro forma for HFS).
7
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
During the year ended 31 December 2021, the CET1 ratio was positively affected mainly by the pre-
provision income, and the decrease in risk-weighted assets (RWA), and negatively affected mainly by
provisions and impairments, the phasing-in of IFRS 9 transitional arrangements on 1 January 2021, the
prudential charge relating to the Group’s foreclosed assets, the cost relating to the tender process for the
existing Tier 2 Capital Notes and the cost relating to the Voluntary Staff Exit Plan. Throughout the Annual
Financial Report, the capital ratios (and pro forma capital ratios) as at 31 December 2021 include profits for
financial year 2021, unless otherwise stated.
The Group has elected to apply the EU transitional arrangements for regulatory capital purposes (EU
Regulation 2017/2395) where the impact on the impairment amount from the initial application of IFRS 9
on the capital ratios is phased-in gradually. The amount added back to CET1 each year decreases based on
a weighting factor until the impact of IFRS 9 is fully absorbed at the end of the five years. The impact on the
capital position for year 2018 was 5% of the impact on the impairment amount from the initial application
of IFRS 9, increased to 15% (cumulative) for year 2019, 30% (cumulative) for year 2020, 50%
(cumulative) for year 2021 and 75% (cumulative) for year 2022. This will be fully phased in (100%) by 1
January 2023. The phasing-in of the impairment amount from the initial application of IFRS 9 had a
negative impact of approximately 62 bps on the CET1 ratio on 1 January 2022.
The CET1 ratio on a fully loaded basis amounted to 13.75% as at 31 December 2021 and 14.32% pro forma
for HFS, compared to 12.94% as at 31 December 2020 (and 13.26% pro forma for HFS). On a transitional
basis and on a fully phased-in basis, after the transition period is completed, the impact of IFRS 9 is
expected to be manageable and within the Group’s capital plans.
The Total Capital ratio stood at 20.01% as at 31 December 2021 and 20.78% pro forma for HFS, compared
to 18.35% as at 31 December 2020 (and 18.74% pro forma for HFS).
The Group’s capital ratios are above the Supervisory Review and Evaluation Process (SREP) requirements.
The Group’s minimum phased-in Common Equity Tier 1 (CET1) capital requirement as at 31 December 2021
stood at 9.69% (comprising a 4.50% Pillar I requirement, a 1.69% Pillar II requirement, the Capital
Conservation Buffer of 2.50% and the Other Systemically Important Institution Buffer of 1.00%).
The SREP Total Capital Requirement as at 31 December 2021 stood at 14.50%, comprising an 8.00% Pillar
I requirement (of which up to 1.50% can be in the form of AT1 capital and up to 2.00% in the form of T2
capital), a 3.00% Pillar II requirement, the Capital Conservation Buffer of 2.50% and the Other Systemically
Important Institution Buffer of 1.00%. The European Central Bank (ECB) has also provided non-public
guidance for an additional Pillar II CET1 buffer. Pillar II add-on capital requirements derive from the SREP,
which is a point in time assessment, and are therefore subject to change over time.
In accordance with the provisions of the Macroprudential Oversight of Institutions Law of 2015, the Central
Bank of Cyprus (CBC) is the responsible authority for the designation of banks that are Other Systemically
Important Institutions (O-SIIs) and for the setting of the O-SII buffer requirement for these systemically
important banks. BOC PCL has been designated as an O-SII and the O-SII buffer was initially set by the CBC
at 2.00%. This buffer is being phased-in gradually, having started from 1 January 2019 at 0.50% and
increasing by 0.50% every year thereafter, until being fully implemented (2.00%). In April 2020, the CBC
decided to delay the phasing-in (0.50%) of the O-SII buffer on 1 January 2021 and 1 January 2022 by 12
months. Consequently, the O-SII buffer will be fully phased-in on 1 January 2023, instead of 1 January
2022 as originally set. In November 2021, the BOC PCL received notification from the CBC that the total O-
SII buffer is reduced by 50 bps to 1.50%, therefore the phasing-in of the O-SII buffer on 1 January 2022
and 1 January 2023 has been revised to 0.25% for each period.
In the context of the annual SREP conducted by the ECB in 2021, and based on the final 2021 SREP
Decision received in February 2022, the Pillar II requirement has been set at 3.26%, compared to the
previous level of 3.00%. The additional Pillar II requirement add-on of 0.26% relates to ECB’s prudential
provisioning expectations as per the 2018 ECB Addendum and subsequent ECB announcements and press
release in July 2018 and August 2019. This component of the Pillar II requirement add-on takes into
consideration Project Helix 3. The add-on is dynamic and can be reduced during 2022 on the basis of in-
scope NPEs and level of provisioning.
8
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
As a result, the Group’s minimum phased-in CET1 capital ratio has been set at 10.08% compared to the
previous level of 9.69% (comprising a 4.50% Pillar I requirement, a 1.83% Pillar II requirement, the Capital
Conservation Buffer of 2.50% and the O-SII Buffer of 1.25%) and the Group’s Total Capital requirement
was set at 15.01% compared to the previous level of 14.50% (comprising an 8.00% Pillar I requirement, of
which up to 1.50% can be in the form of AT1 capital and up to 2.00% in the form of T2 capital, a 3.26%
Pillar II requirement, the Capital Conservation Buffer of 2.50% and the O-SII Buffer of 1.25%). The ECB has
also provided revised lower non-public guidance for an additional Pillar II CET1 buffer. The new SREP
requirements are applicable as from 1 March 2022. The Group’s CET1 and Total Capital ratio remain above
the new requirements.
Own funds held for the purposes of Pillar II Guidance (P2G) cannot be used to meet any other capital
requirements (Pillar I, Pillar II requirements or the combined buffer requirement), and therefore cannot be
used twice.
Based on the SREP decision of prior years, the Company and BOC PCL are under a regulatory prohibition for
equity dividend distribution and hence no dividends were declared or paid during 2021 or 2020. Following
the final 2021 SREP Decision received in February 2022, the Company and BOC PCL still remain under
equity dividend distribution prohibition for 2022. This prohibition does not apply if the distribution is made
via the issuance of new ordinary shares to the shareholders, which are eligible as CET1 capital. No
prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company or
BOC PCL. Following the final 2021 SREP Decision, the previous restriction on variable pay was lifted.
The ECB, as part of its supervisory role, has completed an onsite inspection and review on the value of the
Group’s foreclosed assets with reference date 30 June 2019. The findings relate to a prudential charge
which will decrease based on the progress BOC PCL makes in disposing the properties in scope. The amount
was directly deducted from own funds as at 30 June 2021 resulting in a decrease in the Group’s CET1 ratio
by approximately 44 bps as at 30 June 2021 and reduced to 32 bps as at 31 December 2021, mainly
following impairments taken.
The Group participated in the ECB SREP Stress Test of 2021, the results of which were published by the ECB
on 30 July 2021. For further information please refer to the ‘Additional Risk and Capital Management
Disclosures’ which form part of this Annual Financial Report.
Project Helix 3
In November 2021, the Group reached agreement for the sale of a portfolio of NPEs with gross book value
of €568 million as at 30 September 2021, as well as real estate properties with book value of approximately
€120 million as at 30 September 2021, known as Project Helix 3. Further details are provided in Section
‘Loan portfolio quality’ below.
The capital impact of Project Helix 3 on the Group’s CET1 ratio was an increase of 8 bps as at 30 September
2021. Overall, by completion (currently expected to occur in the first half of 2022), and including the
positive impact already recorded in the income statement during the third quarter of 2021, the transaction
is expected to have a total positive impact of approximately 70 bps on the Group’s CET1 ratio on the basis
of 31 December 2021 figures.
Project Helix 2
In June 2021, the Company completed Project Helix 2 (Portfolios A and B), which refers to the sale of
portfolios of loans with a total gross book value of €1,331 million on completion (of which €1,305 million
relate to non-performing exposures), secured over real estate collateral, the agreements for which were
announced on 3 August 2020 and on 18 January 2021. Further details are provided in Section ‘Loan
portfolio quality’ below.
The capital impact of Project Helix 2 on the Group’s CET1 ratio during the second quarter of 2021 was an
increase of approximately 20 bps, of which approximately 10 bps arose on completion. Post completion, the
transaction was expected to have an additional positive capital impact of approximately 64 bps on the
Group’s CET1 ratio on the basis of 30 June 2021 figures, upon the full payment of the deferred
consideration and without taking into consideration any positive impact from the earnout, thus making the
transaction overall capital accretive.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Capital Base (continued)
Tier 2 Capital Notes
In April 2021, the Company issued €300 million unsecured and subordinated Tier 2 Capital Notes (the ‘New
T2 Notes’).
Immediately after, the Company and BOC PCL entered into an agreement pursuant to which the Company
on-lent to BOC PCL the entire €300 million proceeds of the issue of the New T2 Notes (the ‘Tier 2 Loan’) on
terms substantially identical to the terms and conditions of the New T2 Notes. The Tier 2 Loan constitutes
an unsecured and subordinated obligation of BOC PCL.
The New T2 Notes were priced at par with a fixed coupon of 6.625% per annum, payable annually in arrears
and resettable on 23 October 2026. The maturity date for the New T2 Notes is 23 October 2031. The
Company will have the option to redeem the New T2 Notes early on any day during the six-month period
from 23 April 2026 to 23 October 2026, subject to applicable regulatory consents.
At the same time, BOC PCL invited the holders of its €250 million Fixed Rate Reset Tier 2 Capital Notes due
January 2027 (the ‘Old T2 Notes’) to tender their Old T2 Notes for purchase by BOC PCL at a price of
105.50%, after which Old T2 Notes of €43 million remained outstanding.
At a meeting held on 30 November 2021, the Board of Directors resolved to exercise BOC PCL’s option to
redeem the remaining approximately €43 million nominal amount outstanding of the Old T2 Notes. The
outstanding Old T2 Notes were redeemed on 19 January 2022.
Following the highly successful Tier 2 refinancing in 2021, the Group continues to monitor opportunities for
the optimisation of its capital position, including Additional Tier 1 capital.
Legislative amendments for the conversion of DTA to DTC
Legislative amendments allowing for the conversion of specific deferred tax assets (DTA) into deferred tax
credits (DTC) became effective in March 2019. The law amendments cover the utilisation of income tax
losses transferred from Laiki Bank to BOC PCL in March 2013. The introduction of CRD IV in January 2014
and its subsequent phasing-in led to a more capital-intensive treatment of this DTA for BOC PCL. With this
legislation, institutions are allowed to treat such DTAs as ‘not relying on profitability’, according to CRD IV
and as a result not deducted from CET1, hence improving a credit institution’s capital position.
The Group understands that, in response to concerns raised by the European Commission with regard to the
provision of state aid arising out of the treatment of such tax losses, the Cyprus Government is considering
the adoption of modifications to the Law, including requirements for an additional annual fee over and
above the 1.5% annual guarantee fee already acknowledged, to maintain the conversion of such DTAs into
tax credits.
The Group, in anticipation of modifications in the Law, acknowledges that such increased annual fee may be
required to be recorded on an annual basis until expiration of such losses in 2028. The determination and
conditions of such amount will be prescribed in the Law to be amended and the amount determined by the
Government on an annual basis. The Group, however, understands that contemplated amendments to the
Law may provide that the minimum fee to be charged will be 1.5% of the annual instalment and can range
up to a maximum amount of €10 million per year. The Group estimates that such increased fees could
range up to approximately €5 million per year (for each tax year in scope i.e. since 2018) although the
Group understands that such fee may fluctuate annually as to be determined by the Ministry of Finance. In
this respect, an amount of approximately €5 million was recorded in the fourth quarter of 2021 to bring the
maximum expected increased amount for years 2018-2021 to €21 million. In 2020, an amount of €3 million
was recorded in the fourth quarter 2020 to bring the maximum expected increased amount for years 2018-
2020 to €16 million.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Directors' Report
Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Regulations and Directives
Revised rules on capital and liquidity (CRR II and CRD V)
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V) came into force. As this was
an amending regulation, the existing provisions of CRR apply, unless they are amended by CRR II. Being a
Regulation, CRR II is directly applicable in each member state. Member states were required to transpose
the CRD V into national law. CRD V was transposed and implemented in Cyprus law in early May 2021.
Certain provisions took immediate effect (primarily relating to Minimum Requirement for Own Funds and
Eligible Liabilities, MREL), and most changes became effective as of June 2021. The key changes introduced
consist of, among others, changes to qualifying criteria for CET1, AT1 and Tier 2 instruments, introduction
of MREL requirements and binding Leverage Ratio (as defined in the CRR) and Net Stable Funding Ratio
(NSFR) requirements.
Some of the amendments were introduced in June 2020 as part of the “CRR quick-fix” which brought
forward certain CRR II changes in light of the challenges posed to the banking sector by the COVID-19. The
key measures in the CRR quick fix included an extension of the IFRS 9 transitional arrangements for the
dynamic component by 2 years, the introduction of a prudential filter on exposures to central governments,
regional governments or local authorities at FVOCI, the acceleration of CRR II amendments to exempt
certain software assets from capital deduction and to revise the SME discount factors.
The 2021 Banking Package (CRR III and CRD VI and BRRD)
In October 2021, the European Commission adopted legislative proposals for further amendments to Capital
Requirements Regulation (CRR), CRD IV and the BRRD (the “2021 Banking Package”). Amongst other
things, the 2021 Banking Package would implement certain elements of Basel III that have not yet been
transposed into EU law. The 2021 Banking Package is subject to amendment in the course of the EU’s
legislative process; and its scope and terms may change prior to its implementation. In addition, in the case
of the proposed amendments to CRD IV and the BRRD, their terms and effect will depend, in part, on how
they are transposed in each member state. As a general matter, it is likely to be several years until the
2021 Banking Package begins to be implemented (currently expected in 2025); and certain measures are
expected to be subject to transitional arrangements or to be phased in over time.
Bank Recovery and Resolution Directive (BRRD)
The Bank Recovery and Resolution Directive (BRRD) requires that from January 2016 EU member states
shall apply the BRRD’s provisions requiring EU credit institutions and certain investment firms to maintain a
minimum requirement for own funds and eligible liabilities (MREL), subject to the provisions of the
Commission Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part of the reform package for
strengthening the resilience and resolvability of European banks, the BRRD ΙΙ came into effect and was
required to be transposed into national law. BRRD II was transposed and implemented in Cyprus law in
early May 2021. In addition, certain provisions on MREL have been introduced in CRR ΙΙ which also came
into force on 27 June 2019 as part of the reform package and took immediate effect.
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
In December 2021, BOC PCL received notification from the Single Resolution Board (SRB) of the final
decision for the binding minimum requirement for own funds and eligible liabilities (MREL) for BOC PCL,
determined as the preferred resolution point of entry.
As per the decision, the final MREL requirement was set at 23.74% of risk weighted assets and 5.91% of
Leverage Ratio Exposure (LRE) (as defined in the CRR) and must be met by 31 December 2025.
Furthermore, an interim requirement to be met by 1 January 2022 was set at 14.94% of risk weighted
assets and 5.91% of LRE. The own funds used by BOC PCL to meet the Combined Buffer Requirement (CBR)
will not be eligible to meet its MREL requirements expressed in terms of risk-weighted assets. BOC PCL
must comply with the MREL requirement at the consolidated level, comprising BOC PCL and its subsidiaries.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Regulations and Directives (continued)
In June 2021, BOC PCL executed its inaugural MREL transaction issuing €300 million of senior preferred
notes (the “SP Notes”). The SP Notes were priced at par with a fixed coupon of 2.50% per annum, payable
annually in arrears and resettable on 24 June 2026. The maturity date of the SP Notes is 24 June 2027 and
BOC PCL may, at its discretion, redeem the SP Notes on 24 June 2026, subject to meeting certain
conditions as specified in the Terms and Conditions, including applicable regulatory consents. The SP Notes
comply with the criteria for MREL and contribute towards the MREL requirements of BOC PCL.
The MREL ratio of BOC PCL as at 31 December 2021, calculated according to the SRB’s eligibility criteria
currently in effect and based on BOC PCL’s internal estimate, stood at 19.31% of risk weighted assets
(RWA) and at 9.87% of LRE. Pro forma for HFS, the MREL ratio of BOC PCL as at 31 December 2021,
calculated on the same basis, stood at 20.18% of risk weighted assets. As at 1 January 2022, the MREL
ratio stood at 18.44% of RWAs and 9.56% of LRE, calculated on the same basis. Pro forma for HFS, the
MREL ratio as at 1 January 2022 stood at 19.30% of RWAs. The MREL ratio expressed as a percentage of
risk weighted assets does not include capital used to meet the CBR amount, which stood at 3.5% until 31
December 2021, increased to 3.75% on 1 January 2022 and is expected to increase to 4.0% on 1 January
2023. The MREL ratios disclosed throughout include profits for the financial year 2021, unless otherwise
stated.
The successful Tier 2 capital refinancing in April 2021 and the inaugural issuance of MREL-compliant senior
notes in June 2021 mark the foundation for BOC PCL’s plan to meet applicable MREL requirements. The
interim MREL requirement as at 1 January 2022 has been satisfied, and BOC PCL will continue to evaluate
opportunities to advance the build-up of its MREL liabilities.
Funding and Liquidity
Funding
Funding from Central Banks
At 31 December 2021, BOC PCL’s funding from central banks amounted to €2,970 million, which relates to
ECB funding, comprising solely of funding through the Targeted Longer-Term Refinancing Operations
(TLTRO) III, compared to €995 million as at 31 December 2020.
In June 2021, BOC PCL borrowed an amount of €300 million under the eighth TLTRO III operation,
increasing the borrowing under TLTRO III to €3,000 million, as BOC PCL had already borrowed an amount of
€1,700 million under the seventh TLTRO III operation in March 2021 and an amount of €1,000 million under
the fourth TLTRO III operation in June 2020, despite its comfortable liquidity position, given the favourable
borrowing terms, in combination with the relaxation of collateral requirements.
BOC PCL exceeded the benchmark net lending threshold in the period 1 March 2020 - 31 March 2021 and
qualified for the beneficial rate of -1% for the period from June 2020 to June 2021. The NII benefit from its
TLTRO III borrowing for the period from June 2020 to June 2021 stood at approximately €7 million and was
recognised over the respective period in the income statement.
Based on internal estimations (subject to confirmation from the CBC), BOC PCL has also exceeded the
benchmark net lending threshold in the period 1 October 2020 - 31 December 2021 and is therefore
expected to qualify for a beneficial rate for the period from June 2021 to June 2022. BOC PCL estimates the
NII benefit from its TLTRO III borrowing for the period from June 2021 to June 2022 at approximately €15
million, recognised over the respective period in the income statement.
It is expected that the favourable borrowing terms will not be extended post June 2022.
Deposits
Customer deposits totalled €17,531 million at 31 December 2021 (compared to €16,533 million at 31
December 2020) and increased by 6% during the year.
BOC PCL’s deposit market share in Cyprus reached 34.8% as at 31 December 2021, compared to 35.0% at
31 December 2020. Customer deposits accounted for 70% of total assets and 77% of total liabilities at 31
December 2021 (compared to 77% of total assets and 85% of total liabilities at 31 December 2020).
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Funding and liquidity (continued)
The net Loans to Deposits (L/D) ratio stood at 57% as at 31 December 2021 (compared to 63% as at 31
December 2020 on the same basis). The decrease of 6 p.p. in the year ended 31 December 2021 is mainly
due to the completion of Project Helix 2 in June 2021 and the increase in deposits in 2021. Pro forma for
HFS, the L/D ratio as at 31 December 2021 stood at 56%.
Loan Stock
At 31 December 2021, the Group’s loan stock (including accrued interest) amounted to €643 million
(compared to €272 million at 31 December 2020) and relates to unsecured subordinated Tier 2 Capital
Notes and senior preferred notes.
For further information please refer to Sections ‘Capital Base’ and ‘Bank Recovery and Resolution Directive
(BRRD) / Minimum Requirement for Own Funds and Eligible Liabilities (MREL)’, respectively, above.
Liquidity
At 31 December 2021, the Group Liquidity Coverage Ratio (LCR) stood at 298% (compared to 254% at 31
December 2020), above the minimum regulatory requirement of 100%. The liquidity surplus in LCR at 31
December 2021 amounted to €6.3 billion (compared to €4.2 billion at 31 December 2020). The increase in
2021 is mainly driven by the increase in TLTRO and customer deposits.
At 31 December 2021, the Group Net Stable Funding Ratio (NSFR) stood at 147% (compared to 139% at
31 December 2020), above the minimum regulatory requirement of 100%, enforced in June 2021 as per
CRR II.
Loans
Group gross loans (inclusive of those classified as held for sale) totalled €10,856 million at 31 December
2021, compared to €12,261 million at 31 December 2020, reduced by 11% during the year mainly due to
the completion of Project Helix 2.
New lending granted in Cyprus reached €1,792 million for 2021 (up by 33% yoy and approaching 2019 pre-
pandemic levels). New lending in 2021 comprised €798 million of corporate loans, €655 million of retail
loans (of which €475 million were housing loans), €189 million of SME loans and €150 million of shipping
and international loans. New corporate loans in 2021 have increased by approximately 34% on the prior
year, as the economic activity has continued to improve. At the same time, demand for retail housing loans
remained strong, supported by the Government interest rate scheme (expired on 31 December 2021).
At 31 December 2021, the Group net loans and advances to customers (excluding those classified as held
for sale) totalled €9,836 million (compared to €9,886 million at 31 December 2020).
In addition, at 31 December 2021 net loans and advances to customers of €250 million were classified as
held for sale in line with IFRS 5 of which €243 million related to Project Helix 3 and €7 million to Project
Sinope (see below), compared to €493 million as at 31 December 2020, of which €485 million related to
Project Helix 2 and €8 million to Helix Tail.
BOC PCL is the single largest credit provider in Cyprus with a market share of 38.8% at 31 December 2021,
compared to 41.9% at 31 December 2020. The decrease in the year is mainly due to the completion of
Project Helix 2.
Loan portfolio quality
The Group has continued to make steady progress across all asset quality metrics. As the balance sheet de-
risking is largely complete, the Group’s priorities include maintaining high quality new lending and
normalising the cost of risk and other impairments, whilst managing the post-pandemic NPE inflows.
The loan credit losses for 2021 totalled €66 million (excluding ‘Provisions/net (loss)/profit relating to NPE
sales’), compared to €149 million in 2020. Further details regarding loan credit losses are provided in
Section ‘Profit/(loss) before tax and non-recurring items’ below.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
While defaults have been limited, the additional monitoring and provisioning for sectors vulnerable under
COVID-19 remain in place to ensure that potential difficulties in the repayment ability are identified at an
early stage, and appropriate solutions are provided to viable customers. In addition, in early 2022 the
Group has enhanced its monitoring to sectors, such as tourism, that are impacted from the consequences of
the Ukrainian crisis (as further discussed in the 'Operating Environment' and 'Business Overview' Sections
below).
The Group will continue to monitor the situation, so that any changes arising from the uncertainty on the
macroeconomic outlook and geopolitical developments, impacted by implications of the Russian invasion of
Ukraine, as well as the degree of recurrence of the COVID-19 disease due to virus mutations, and the
persistent positive effect of fiscal and monetary policy, are timely captured.
Loan moratorium
As part of the measures to support borrowers affected by COVID-19 and the wider Cypriot economy, the
Cyprus Parliament voted for the suspension of loan repayments for interest and principal (loan moratorium)
for the period to the end of the year 2020, for all eligible borrowers with no arrears for more than 30 days
as at the end of February 2020. The payment holiday for all these loans expired on 31 December 2020.
Performing loans as at 31 December 2021 under expired payment deferrals amounted to €4.60 billion
(compared to €5.3 billion as at 31 December 2020), of which €4.58 billion had an instalment due by 15
March 2022 with a strong performance; 96% presented no arrears (of which €0.73 billion have been
restructured until 15 March 2022) and only 4% (€196 million) are in arrears (of which €192 million are less
than 30 days-past-due). 65% of restructurings took place in the first six months of 2021.
Performing loans to private individuals as at 31 December 2021 under expired payment deferrals amounted
to €1.7 billion, of which almost all had an instalment due by 15 March 2022. Of those, 91% presented no
arrears (of which approximately €34 million have been restructured until 15 March 2022) and only 9%
(€151 million) are in arrears (of which €148 million are less than 30 days-past-due).
Similarly, performing loans to businesses as at 31 December 2021 under expired payment deferrals
amounted to €2.9 billion, of which 99% had an instalment due by 15 March 2022. Of those, 98% presented
no arrears (of which approximately €0.69 billion have been restructured until 15 March 2022, mostly in the
tourism sector) and only 2% (€45 million) are in arrears.
In 2021, net reclassifications of €43 million of loans under expired payment deferrals were made from
Stage 2 to Stage 1, mainly due to improved macroeconomic assumptions and updated financial information.
In addition, net reclassifications of approximately €37 million of loans under expired payment deferrals were
made mainly from Stage 2 to Stage 3. References made to ‘loans under expired payment deferrals’ in this
paragraph include current account and overdrafts.
The provision coverage of Stage 3 loans under expired payment deferrals of approximately 32% as at 31
December 2021 is considered to be adequate, as it is higher than the coverage of re-performing NPEs (NPEs
in the pipeline to exit, subject to meeting all exit criteria) of 28%.
Loan credit losses in 2021 amounted to €66 million, reflecting an annualised cost of risk of 0.57% and
include a net reversal of loan impairments relating to COVID-19 (including related impact on
macroeconomic assumptions) of approximately €5 million (4 bps). Following continuing signs of recovery,
the majority of COVID-19 related management overlays applied in 2020 and the first half of 2021 were
removed in the third quarter of 2021 as a result of stronger than expected economic performance. In 2020,
the impact of IFRS 9 Forward Looking Information (FLI) driven by the update of the macroeconomic
assumptions resulted in a €54 million charge (43 bps) included in loan credit losses of €149 million (cost of
risk of 1.18%). Further details on the cost of risk are provided in Section ‘Profit/(loss) before tax and non-
recurring items’.
Close monitoring of the credit quality of these loans continues and customers with early arrears are offered
solutions. BOC PCL has a strong track record in dealing with restructurings. Targeted restructuring solutions
are offered to alleviate pandemic-related short-term cash flow burden, following rigorous assessment of
repayment ability. To date, most restructurings relate to the tourism sector.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
As at 31 December 2021, the Group’s non-legacy loan book exposure to tourism was limited to €1.15 billion
(out of a total non-legacy loan book of €9.5 billion), of which approximately €0.87 billion of performing
loans as at 31 December 2021 were under expired payment deferrals. 99% of those had an instalment due
by 15 March 2022 and of those almost all presented no arrears (of which €350 million have been
restructured until 15 March 2022 and 80% of these restructurings took place in the first half of 2021).
Tourism performance in 2021 was better than initially anticipated. There was a steady monthly recovery of
tourist arrivals, as the tourism season extended until October. Tourist arrivals in October 2021 reached 90%
of corresponding levels in 2019, whilst tourist arrivals in the second half of 2021 reached approximately
70% of corresponding levels in 2019. It is important to note, that the majority of ‘accommodation’
customers entered the crisis with significant liquidity, following strong performance in recent years and that
98% of the tourism sector portfolio is secured by property.
The crisis in Ukraine may have an adverse impact on the Cypriot economy, partly due to a negative impact
on tourism. This impact will depend on the duration and severity of the crisis which remain uncertain at this
stage. In response, the Government is working to replace tourist arrivals from Russia and Ukraine (which
amounted to approximately 20% of 2019 levels) through the promotion of domestic tourism and arrivals
from other markets, such as Germany, Israel, Poland, Austria, Switzerland, Italy, France, Sweden and
Hungary. Close monitoring of exposures to the tourism sector is enhanced and the Group remains in close
contact with customers to offer solutions as necessary. For further details on the Ukrainian crisis, please
refer to section ‘Business Overview’ further below.
Respectively, as at 31 December 2021 the Group’s non-legacy loan book exposure to trade was €0.94
billion, of which €0.29 billion of performing loans as at 31 December 2021 were under expired payment
deferrals. Almost all had an instalment due by 15 March 2022 and of those, 98% presented no arrears (of
which €18 million have been restructured) and only 2% presented arrears.
The table below presents the loans under expired payment deferrals, by IFRS 9 staging.
IFRS 9 staging for loans under expired payment deferrals (€ billion) 2021 2020
Stage 1 3.51 3.96
Stage 2 1.37 1.58
Stage 3
0.22 0.33
Total (includes overdrafts and current accounts)
5.10 5.87
A second scheme for the suspension of loan repayments for interest and principal (loan moratorium) was
launched in January 2021 for customers impacted by the second lockdown. Payment deferrals were offered
to the end of June 2021, however, the total months under loan moratorium, including the loan moratorium
offered in 2020, cannot exceed a total of nine months. The application period expired on 31 January 2021
and loans of approximately €20 million were approved for the second moratorium.
Non-performing exposure reduction
During 2021 non-performing exposures (NPEs) as defined by the European Banking Authority (EBA) were
reduced by €1,743 million, comprising NPE sales of €1,305 million, net NPE reductions of €438 million (of
which approximately €400 million organic and €38 million relating to Project Helix 3 loans) to €1,343 million
at 31 December 2021 (compared to €3,086 million at 31 December 2020). Pro forma for HFS, NPEs are
reduced by a further €572 million to €771 million on the basis of 31 December 2021 figures. Overall in
2021, NPEs were reduced by 75% on pro forma basis.
The NPEs account for 12.4% of gross loans as at 31 December 2021, compared to 25.2% as at 31
December 2020, on the same basis, i.e. including the NPE portfolios classified as ‘Non-current assets and
disposal groups held for sale’. The reduction in NPE ratio by approximately 13 p.p. in the year is driven by
the completion of Project Helix 2. Pro forma for HFS, the NPE ratio is reduced to 7.5% on the basis of 31
December 2021 figures.
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
The NPE coverage ratio stands at 59% at 31 December 2021, compared to 62% at 31 December 2020 on
the same basis, i.e. including the NPE portfolios classified as ‘Non-current assets and disposal groups held
for sale’. When taking into account tangible collateral at fair value, NPEs are fully covered. Pro forma for
HFS, NPE coverage ratio is 61% on the basis of 31 December 2021 figures.
As of 1 January 2021, the new regulation on Definition of Default has been implemented, affecting NPE
exposures and the calculation of Days-Past-Due (please refer to Note 2.19.2 of the Consolidated Financial
Statements for the changes in the definition).
2021
Pro forma for HFS
2021
2020
Pro forma for HFS
2020
€ million
% gross
loans
€ million
% gross
loans
€ million
% gross
loans
€ million
% gross
loans
NPEs as per EBA definition 771 %7.5 1,343 %12.4 1,760 %16.1 3,086 %25.2
Of which, in pipeline to exit:
- NPEs with forbearance measures, no
arrears*
142 %1.4 152 %1.4 245 %2.2 303 %2.5
*The analysis is performed on a customer basis.
Project Helix 3
In November 2021, the Group reached agreement for the sale of a portfolio of NPEs with gross book value
of €568 million as at 30 September 2021, as well as real estate properties with book value of approximately
€120 million as at 30 September 2021, to funds affiliated with Pacific Investment Management Company
LLC (PIMCO), known as Project Helix 3. This portfolio of loans had a contractual balance of €993 million as
at the reference date of 31 May 2021 and comprises approximately 20,000 loans, mainly to retail clients. As
at 31 December 2021, this portfolio of loans, as well as the real estate properties included in Helix 3, were
classified as a disposal group held for sale. At completion, currently expected to occur in the first half of
2022, BOC PCL will receive gross cash consideration of approximately €385 million.
This portfolio of loans (as well as the real estate properties included in Helix 3) will be transferred to a
licensed Cypriot Credit Acquiring Company (the 'CyCAC') by BOC PCL. The shares of the CyCAC will then be
acquired by certain funds affiliated with Pacific Investment Management Company LLC (PIMCO), the
purchaser of the portfolio.
Following a transitional period where servicing will be retained by BOC PCL, it is intended that the servicing
of the portfolio of loans and the real estate properties included in Helix 3 will be carried out by a third party
servicer selected and appointed by the purchaser.
Project Helix 3 represents a milestone in the delivery of one of the Group’s core strategic priorities of
improving asset quality through the reduction of NPEs. Pro forma for HFS, the Group’s NPE ratio is in single
digit. Helix 3 reduced the stock of NPEs by approximately 42% to €771 million pro forma on the basis of 31
December 2021 figures, and the Group's NPE ratio by approximately 5 percentage points, to 7.5% pro
forma on the basis of 31 December 2021 figures. Overall, since the peak in 2014 and pro forma for HFS, the
stock of NPEs has been reduced by €14.2 billion or 95% to €0.8 billion and the NPE ratio by 55 percentage
points, from 63% to less than 8%.
The Group has early achieved its previous 2022 target for a single digit NPE ratio and is on track to achieve
an NPE ratio of approximately 5% by the end of 2022 and less than 3% by the end of 2025.
Project Helix 2
In June 2021, the Group completed Project Helix 2 (Portfolios A and B), which refers to the sale of portfolios
of loans with a total gross book value of €1,331 million as at the completion date (of which €1,305 million
relate to non-performing exposures) secured over real estate collateral, and stock of properties with
carrying value amounting to €73 million, to funds affiliated with Pacific Investment Management Company
LLC (PIMCO), the agreements for which were announced on 3 August 2020 and on 18 January 2021. BOC
PCL retained the servicing of these Portfolios for a transitional period to the end of third quarter of 2021,
against a servicing fee (see Section ‘Total Income’ below).
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Loan portfolio quality (continued)
The consideration for the sale amounts to approximately €560 million, of which approximately €165 million
were received in cash by completion. The remaining amount is payable in four instalments up to December
2025 without any conditions attached, of which approximately €85 million were received in December 2021.
The consideration can be increased through an earnout arrangement, depending on the performance of
each of the Portfolios.
Project Helix 2 represents another milestone in the delivery of one of the Group’s strategic priorities of
improving asset quality through the reduction of NPEs. Project Helix 2 (Portfolios A and B) reduced the NPE
ratio by approximately 9 percentage points, on the basis of 30 June 2021 figures.
Project Sinope
In December 2021, BOC PCL entered into an agreement for the sale of a portfolio of NPEs, with a
contractual balance of €146 million and a gross book value of €12 million as at 31 December 2021, as well
as properties in Romania with carrying value €0.6 million as at 31 December 2021 (known as ‘Project
Sinope’). The sale is subject to the necessary approvals and is expected to be completed within the first half
of 2022. The portfolio has been classified as held for sale as at 31 December 2021.
Real Estate Management Unit (REMU)
The Real Estate Management Unit (REMU) is focused on the disposal of on-boarded properties resulting
from debt for asset swaps. Cumulative sales since the beginning of 2017 amount to €1.37 billion and
exceed properties on-boarded for the same period of €1.32 billion.
The Group completed disposals of €140 million during the year ended 31 December 2021, including
disposals of approximately €6 million relating to completed NPE sales (compared to €80 million during the
year ended 31 December 2020), resulting in a profit on disposal of €14 million for the year ended 31
December 2021 (compared to a profit on disposal of €9 million for the year ended 31 December 2020),
following the relaxation of restrictive measures. Asset disposals are across all property classes, with
approximately half of sales by value in 2021 relating to land.
During 2021, assets held by REMU with carrying value of €102 million were transferred to “non-current
assets and disposal groups held for sale” as they were included in Project Helix 3 and Project Sinope. As at
31 December 2021, the carrying value of these assets stood at €98 million (comprising stock of property of
€93 million and investment properties of €5 million). Pro forma for non-current assets and disposal groups
held for sale, assets held by REMU were reduced by 17% in 2021.
During 2021, the Group executed sale-purchase agreements (SPAs) for disposals of 703 properties (with
contract value of €149 million), compared to SPAs for disposals of 492 properties (with contract value of
€91 million) for 2020. Pro forma for non-current assets and disposal groups held for sale, the Group
executed SPAs of 1,130 properties with contract value of approximately €250 million during 2021,
representing an increase (by contact value) of over 170% compared to 2020.
In addition, the Group had a strong pipeline of €109 million by contract value as at 31 December 2021, of
which €47 million related to SPAs signed (compared to a pipeline of €81 million as at 31 December 2020, of
which €53 million related to SPAs signed).
REMU on-boarded €34 million of assets in 2021 (compared to additions of €146 million in 2020, including
€22 million transferred from own use properties), via the execution of debt for asset swaps and repossessed
properties.
Details with respect to the prudential charge relating to the onsite inspection findings are provided above in
the ‘Capital Base’ section.
Assets held by REMU
As at 31 December 2021, assets held by REMU (excluding assets classified as held for sale) had a carrying
value of €1,215 million (comprising properties of €1,112 million classified as ‘Stock of property’ and €103
million as ‘Investment properties’), compared to €1,473 million as at 31 December 2020 (comprising
properties of €1,350 million classified as ‘Stock of property’ and €123 million as ‘Investment properties’).
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Group financial results on the underlying basis (continued)
Balance Sheet Analysis (continued)
Real Estate Management Unit (REMU) (continued)
In addition to assets held by REMU, properties classified as ‘Investment properties’ with carrying value of
€15 million as at 31 December 2021, compared to €5 million as at 31 December 2020 are not managed by
REMU. These relate mainly to legacy properties held by the Group before the set-up of REMU in January
2016 and to assets classified as ‘Investment properties’ following a change in use.
Income Statement Analysis
Total income
Net interest income (NII) for 2021 amounted to €296 million, compared to €330 million in 2020, down by
10% compared to previous year, mainly due to the continuing pressure from the low interest rate
environment and the completion of Helix 2, partially offset by the increase in TLTRO III in 2021 and the
reduction in the cost of deposits.
The NII for 2021 includes an amount of approximately €15 million which relates to the NII of the loans
included in Project Helix 2 (Portfolios A and B) recognised up to 30 June 2021, before completion in June
2021. The reduction in NII as a result of the completion of Project Helix 2 has been partially offset by an
amount of €5 million in the second half of 2021 relating to the unwinding of the net present value and
interest income of the deferred consideration, which is expected to continue until 2023, on the basis of
repayments and assuming no early repayment in 2023.
Average interest earning assets (AIEA) for 2021 amounted to €20,436 million, up by 14% compared to a
year earlier, driven by the increase in liquid assets following the increase in the borrowing under TLTRO III
by €2.0 billion, as well as the increase in deposits by €1 billion, compared to 2020.
Net interest margin (NIM) for 2021 amounted to 1.45%, compared to 1.84% for 2020, negatively impacted
by the decrease in NII and the increase in AIEA.
Non-interest income for 2021 amounted to €285 million, compared to €237 million for 2020, up by 20% on
the prior year, comprising net fee and commission income of €172 million, net foreign exchange gains and
net gains/(losses) on financial instrument transactions and disposal/dissolution of subsidiaries and
associates of €24 million, net insurance income of €61 million, net gains/(losses) from revaluation and
disposal of investment properties and on disposal of stock of properties of €13 million and other income of
€15 million. The increase compared to the prior year is driven by higher net fee and commission income,
higher net foreign exchange gains and net gains/(losses) on financial instrument transactions and
disposal/dissolution of subsidiaries and associates, higher net insurance income, as well as higher REMU
disposal gains and lower revaluation losses on investment properties.
Net fee and commission income for 2021 amounted to €172 million, compared to €144 million for 2020, up
by 19% on the prior year, and above pre-pandemic levels, reflecting higher volume of transactions, as well
as the extension of liquidity fees to a broader group of corporate clients and the introduction of a revised
price list for charges and fees, both implemented as of 1 February 2021. Net fee and commission income for
2021 includes an amount of approximately €7 million relating to an NPE sales-related servicing fee, for a
transitional period that ended at the end of the third quarter of 2021.
Net foreign exchange gains and net gains/(losses) on financial instrument transactions and
disposal/dissolution of subsidiaries and associates of €24 million for 2021 (comprising net foreign exchange
gains of €16 million and net gains on financial instrument transactions of €8 million), compared to €15
million for 2020, increased by 65% on the prior year driven mainly by higher net gains on financial
instruments.
Net insurance income of €61 million for 2021, compared to €56 million for 2020, up by 9% compared to the
previous year, mainly due to higher gross written premiums, partly offset by the net impact from the
changes in the discount rate in the life insurance business and by higher costs and claims in the general
insurance business (as claims in 2020 had been positively impacted by lockdowns).
Net gains/(losses) from revaluation and disposal of investment properties and on disposal of stock of
properties for 2021 amounted to €13 million (comprising net gains on disposal of stock of properties of €13
million, net gains on disposal of investment properties of €1 million and net losses from revaluation of
investment properties of €1 million), compared to €7 million in 2020 which had been impacted by the
lockdown measures.
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Group financial results on the underlying basis (continued)
Income Statement Analysis (continued)
Total income (continued)
Total income for 2021 amounted to €581 million, compared to €567 million for 2020, up 2% compared to
the prior year.
Total expenses
Total expenses for 2021 were €383 million, compared to €373 million for 2020, up by 2% compared to the
prior year, 53% of which related to staff costs (€202 million), 38% to other operating expenses (€145
million) and 9% (€36 million) to special levy on deposits and other levies/contributions. The yearly increase
of 2% is driven by the 4% yearly increase in staff costs. Further details are provided below.
Total operating expenses for 2021 were €347 million, compared to €340 million for 2020, up by 2%
compared to the prior year.
Staff costs for 2021 were €202 million, compared to €195 million for 2020, increased by 4% compared to
the prior year, in line with the renewal of the collective agreement for 2021.
In July 2021, BOC PCL reached agreement with the Cyprus Union of Bank Employees for the renewal of the
collective agreement for the years 2021 and 2022. The agreement related to certain changes including the
introduction of a new pay grading structure linked to the value of each position of employment, and of a
performance-related pay component as part of the annual salary increase, both of which have been long-
standing objectives of BOC PCL and are in line with market best-practice. The expected impact of the
renewal was an increase in staff costs for 2021 and 2022 by 3-4% per annum, in line with the impact of
renewals in previous years.
The Group employed 3,438 persons as at 31 December 2021, compared to 3,573 as at 31 December 2020.
During the second half of the year 2021, 96 persons relating to Project Helix 2 were transferred to the
buyer upon full migration. In December 2021, the Group completed a small-scale targeted voluntary staff
exit plan (VEP), through which approximately 100 of the Group’s full-time employees were approved to
leave at a total cost of €16 million, recorded in the consolidated income statement in the fourth quarter of
2021 as a non-recurring item in the underlying basis (compared to a total cost of €6 million for a targeted
voluntary staff exit plan completed in December 2020). Following the completion of the VEP in December
2021, the gross annual savings are estimated at approximately 3% of staff costs.
Other operating expenses for 2021 were €145 million, down 1% compared to previous year.
Special levy on deposits and other levies/contributions for 2021 amounted to €36 million, compared to €33
million for 2020, up by 8% compared to the prior year. Special levy on deposits and other
levies/contributions for 2021 include a levy in the form of an annual guarantee fee relating to the expected
revised income tax legislation (DTC levy) of approximately €5 million recorded in the fourth quarter of 2021
(see ‘Capital Base’ section above). The special levy on deposits and other levies/contributions for 2020 were
represented to include the DTC levy of approximately €3 million.
As from 1 January 2020 and until 3 July 2024 BOC PCL is subject to contribution to the Deposit Guarantee
Fund (DGF) on a semi-annual basis. The contributions are calculated based on the Risk Based Methodology
(RBM) as approved by the management committee of the Deposit Guarantee and Resolution of Credit and
Other Institutions Schemes (DGS) and is publicly available on the CBC’s website. In line with the RBM, the
contributions are broadly calculated on the covered deposits of all authorised institutions and the target
level is to reach at 0.8% of these deposits by 3 July 2024.
The cost to income ratio excluding special levy on deposits and other levies/contributions for 2021 was
60%, flat compared to the previous year.
Profit/(loss) before tax and non-recurring items
Operating profit for 2021 was €198 million, compared to €194 million for 2020, up by 2% compared to the
prior year.
Loan credit losses for 2021 totalled €66 million, compared to €149 million for 2020, down by 55%
compared to the prior year.
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Group financial results on the underlying basis (continued)
Income Statement Analysis (continued)
Profit/(loss) before tax and non-recurring items (continued)
The annualised loan credit losses charge (cost of risk) for 2021 accounted for 0.57% of gross loans and
includes a net reversal of loan impairments relating to COVID-19 (including related impact on
macroeconomic assumption) of 4 bps (compared to an annualised loan credit losses charge of 1.18% for
2020, of which 43 bps reflect loan impairments relating to COVID-19). Further details are provided in
Section ‘Loan portfolio quality’ above.
At 31 December 2021, the allowance for expected loan credit losses, including residual fair value
adjustment on initial recognition and credit losses on off-balance sheet exposures totalled €792 million
(compared to €1,902 million at 31 December 2020) and accounted for 7.3% of gross loans, including
portfolios held for sale (compared to 15.5% of gross loans, including portfolios held for sale and at 31
December 2020 respectively).
Impairments of other financial and non-financial assets for 2021 amounted to €36 million, compared to €42
million for 2020, down by 15% compared to the prior year, driven by lower revaluation losses on
properties.
Reversals net of provisions for litigation, claims, regulatory and other matters for 2021 amounted to €2
million, compared to provisions of €7 million for 2020.
Profit before tax and non-recurring items for 2021 totalled €98 million, compared to a loss of €4 million for
2020.
Profit/(loss) after tax (attributable to the owners of the Company)
The tax charge for 2021 is €5 million, compared to €8 million for 2020.
Profit after tax and before non-recurring items (attributable to the owners of the Company) for 2021 was
€91 million, compared to a loss of €9 million for 2020. Return on Tangible Equity (ROTE) before non-
recurring items calculated using ‘profit after tax and before non-recurring items (attributable to the owners
of the Company)’ amounts to 5.5% for 2021, compared to a negative return of -0.5% for 2020.
Advisory and other restructuring costs - organic for 2021 amounted to €22 million (compared to €10 million
for 2020), mainly driven by an amount of approximately €12.5 million which related to the cost of the
tender offer for the ‘Old T2 Notes’, thereby forfeiting the relevant obligation for future coupon payments.
Profit after tax arising from the organic operations (attributable to the owners of the Company) for 2021
amounted to €69 million, compared to a loss of €19 million for 2020.
Provisions/net loss relating to NPE sales for 2021 were €7 million, compared to €120 million for 2020.
Restructuring and other costs relating to NPE sales for 2021 was €16 million, compared to €26 million for
2020.
Restructuring costs relating to the Voluntary Staff Exit Plan (VEP) amounted to €16 million for 2021
(compared to €6 million for 2020). For further details please refer to ‘Total expenses’ section.
Profit after tax attributable to the owners of the Company for 2021 was €30 million (compared to a loss of
€171 million for 2020).
Operating environment
Economic activity recovered strongly in 2021, driven by domestic demand in the first half of 2021 and by
external demand in the second half of 2021 reflecting a strong recovery in tourist activity in the period.
Government support to businesses and households remained substantial in the year but the budget deficit
narrowed substantially driven by increased revenues. Inflation accelerated in the second half of 2021 and
unemployment remained largely unchanged from the previous year. Over the medium term, prospects
remain positive aided also by the Recovery and Resilience Fund of Next Generation EU, but the crisis over
Ukraine has increased downside risks.
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Operating environment (continued)
The Russian invasion of Ukraine and the sanctioning of Russia are expected to have profound impact on the
Russian economy, and serious macroeconomic implications for the European Union and the global economy.
The invasion and sanctions constitute a major shock both in supply chains and in energy prices. Supply
chains have been disrupted causing shortages in agricultural commodities and metals. Energy prices have
risen and are expected to remain elevated for longer. Inflationary pressures that were building before the
outbreak of the Ukrainian crisis, have escalated and central banks have started their tightening cycles. The
Bank of England raised its policy rates three times in the first quarter to 0.75% and inflation increased to
5.5% in February 2022. In the USA, the Federal Reserve raised interest rates by 25 bps in mid-March 2022
and indicated another six hikes in 2022 and three more in 2023 before pausing. In March 2022, the ECB
maintained its main refinance rate unchanged at zero, but indicated that quantitative easing will likely end
sooner rather than later, and that interest rates may start to rise earlier than anticipated. Raising interest
rates to contain inflation would be adding to uncertainty and negatively impacting the growth outlook.
The crisis in Ukraine may have an adverse impact on the Cypriot economy, mainly due to a negative impact
on the tourism and professional services sectors, increasing energy prices resulting in inflationary
pressures, and disruptions to global supply chains. The impact on the Cypriot economy remains uncertain
and will depend on the duration and severity of the crisis.
The European Union is expected to absorb the cost from the influx of refugees who are expected to be in
the millions and undertake short-term measures to lessen the impact of higher inflation on the most
vulnerable segments of the population. In the short-term fiscal expansion is expected to be debt financed
but longer-term structural changes will be needed.
The Next Generation EU is a significant initiative and countries may need to utilise additional resources still
available in the form of loans, given the uncertainties associated with the crisis in Ukraine. The purpose of
Next Generation EU is ultimately about the future, to help fund the key investments that will be needed for
the green and digital transitions, and so enhance the potential and economic resilience of member states.
Structural reform is an integral part of this process, and ultimately a critical factor that will determine the
effectiveness of the investments.
Cyprus received €157 million in EU recovery fund pre-financing in September 2021 (13% of the total
allocated amount), following the approval of its national recovery plan in July 2021. The bulk of the funds
are expected to be released in 2022-2024 depending on the strict implementation of reform priorities
agreed with the EU. These include, increasing the efficiency of public and local administrations; improving
the government of state-owned enterprises; reducing further the levels of non-performing loans in the
banking sector; improving the efficiency of the judicial system; and accelerating anti-corruption reforms.
The COVID-19 pandemic had a significant impact on the economy with real GDP dropping by 5.0% in 2020
compared with an average drop of 6.4% in the Eurozone. The recovery in 2021 was relatively strong with
real GDP rising by 5.5% according to the Cyprus Statistical Service, fully recovering the lost output from the
previous year. Tourist arrivals recovered strongly in the year, particularly in the second half. On average for
2021, tourist arrivals were approximately 50% of 2019 levels, but reached approximately 70% of 2019
levels in the second half of the year. The crisis in Ukraine may have an adverse impact on the Cypriot
economy, partly due to a negative impact on tourism. This impact will depend on the duration and severity
of the crisis which remain uncertain at this stage. In response, the Government is working to replace tourist
arrivals from Russia and Ukraine (which amounted to approximately 20% of 2019 levels) through the
promotion of domestic tourism and arrivals from other markets, such as Germany, Israel, Poland, Austria,
Switzerland, Italy, France, Sweden and Hungary. Close monitoring of exposures to the tourism sector is
enhanced and the Group remains in close contact with customers to offer solutions as necessary.
The unemployment rate has been declining since its peak in 2014, to 7.7% in 2020 and to 7.8% in the first
three quarters of 2021. The labour market is gradually tightening because employment volumes are rising
faster than increases in the labour force. On the supply side of the labour market, the labour force is
constrained by slowing population growth, skill mismatches especially after the pandemic crisis, and low
participation rates in segments of the population.
Consumer prices accelerated from the second quarter onwards, and more steeply in the second half of the
year. In total for 2021, consumer prices increased by 2.4% and by 4.4% in the second half alone. Cyprus's
consumer price inflation has followed a similar trend to that in the euro area. The acceleration largely
reflects higher global prices for energy and transport goods, which were driven by recovering aggregate
demand against supply-chain bottlenecks. There were also structural factors at play. The end of the
temporary VAT reduction in January 2021 resulted in stronger price growth in a year-on-year comparison
from July 2021.
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Operating environment (continued)
The current account deficit deteriorated in 2020-2021 due to the loss of revenues from export services,
mainly tourism. The current account deficit was 10.1% of GDP in 2020 and it is estimated at 9.1% of GDP in
2021 (European Commission). The size of Cyprus’ current account deficit reflects special-purpose vehicles
domiciled in Cyprus through which foreign enterprises register ships in Cyprus which adds to fixed
investment and imports.
Cyprus is an exports oriented, services-based economy, driven by tourism, shipping and professional and
financial services. Total services account for more than 80% of total gross value added. The primary and
secondary sectors are relatively small. This means that Cyprus is also a large importer of goods, relative to
the size of the economy and tends to have large trade deficits which are offset by large services surpluses in
the current account.
In the banking sector there has been significant progress since the 2013 financial crisis. Banks have reduced
their foreign exposure; the regulatory framework and prudential oversight have been strengthened; a new
legal framework for foreclosures and insolvencies has been implemented. Non-performing exposures have
been reduced from €28.4 billion in 2014 to €4.3 billion as at the end of October 2021. The ratio of non-
performing exposures to gross loans dropped from 47.8% to 15.2% in the same period and the coverage
ratio of provisions to non-performing exposures increased slightly to 50.6%. The ratio of non-performing
exposures still remains elevated when compared with an EU average of just over 2%. Total loans to the
private sector also declined steeply in the same period. Loans to residents excluding the government,
dropped to €23.3 billion at the end of December 2021, including the non-performing loans, which is
approximately 100% of GDP in 2021.
Cyprus public finances deteriorated sharply in 2020 as a result of the recession and the fiscal measures that
were implemented to support the economy against COVID-19. The budget deteriorated from a surplus of
1.3% of GDP in 2019 to a deficit of 5.6% of GDP in 2020. Public finances strengthened in 2021 despite
substantial government support measures and the budget deficit dropped to 1.8% of GDP. This was driven
primarily by sharp increases in tax revenues and social security contributions in the second and third
quarters. Expenditures rose at a much slower pace in the period following sharp increases the year before.
General government debt remained almost unchanged in 2021 and the debt-to-GDP ratio declined from
115% at end-2020 to 103.9% at end-2021.
Sovereign ratings
The sovereign risk ratings of the Cyprus Government improved considerably in recent years reflecting
reduced banking sector risks, and improvements in economic resilience and consistent fiscal
outperformance. Cyprus demonstrated policy commitment to correcting fiscal imbalances through reform
and restructuring of its banking system. Public debt remains high in relation to GDP but large-scale asset
purchases from the ECB ensure favourable funding costs for Cyprus and ample liquidity in the sovereign
bond market.
Most recently in March 2022, Fitch Ratings affirmed Cyprus' Long-Term Issuer Default rating at investment
grade at BBB- since November 2018 and a stable outlook. The stable outlook reflects the view that despite
Cyprus’ exposure to Russia through its tourism and investment linkages, near-term risks are mitigated by a
strengthened government fiscal position, and continued normalisation of spending after the pandemic
shock. Meanwhile, medium-term growth prospects remain positive on the back of the government's
Recovery and Resilience Plan (RRP).
Also in March 2022, S&P Global Ratings affirmed Cyprus' investment grade rating of BBB- and positive
outlook. The positive outlook reflects the view that Cyprus’ sovereign rating could be upgraded within the
next 24 months if the country's economic and budgetary performance continues to strengthen, supported
by the Government's implementation of structural reforms. In March 2022, S&P Global Ratings affirmed
rating of BBB- and positive outlook stressing that despite the Ukrainian crisis and economic sanctions
against Russia, the medium-term outlook for the Cyprus economy remains strong.
In July 2021, Moody's Investors Service upgraded the Government of Cyprus' long-term issuer and senior
unsecured ratings to Ba1 from Ba2 (since July 2018) and changed the outlook from positive to stable. The
primary driver for the upgrade was the material improvement in the underlying credit strength of the
domestic banking system, which also reduces the risks of a systemic banking crisis.
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Operating environment (continued)
In October 2021, DBRS Morningstar confirmed Cyprus’ Long-Term Foreign and Local Currency Issuer
Ratings at BBB (low) and upgraded its outlook from stable to positive trend. This reflects the expectation
that Cyprus’s public debt ratio will most likely return to its pre-pandemic downward path starting from
2021, supported by a solid economic growth and fiscal repair. In a March 2022 commentary DBRS
Morningstar noted that Russia's invasion of Ukraine increases downside risks to otherwise strong medium-
term economic prospects.
Business Overview
Credit ratings
The Group’s financial performance is highly correlated to the economic and operating conditions in Cyprus.
In February 2022, Standard and Poor’s affirmed their long-term issuer credit rating on BOC PCL of B+,
maintaining the positive outlook. In December 2021, Moody’s Investors Service upgraded the BOC PCL’s
long-term deposit rating to Ba3 from B1, maintaining the positive outlook. The upgrade reflects significant
ongoing improvement in the BOC PCL’s asset quality following the agreement reached in Project Helix 3 in
November 2021. In December 2021, Fitch Ratings affirmed BOC PCL’s long-term issuer default rating of B-
and revised the outlook to positive from negative. The revision of the outlook reflects significant
improvement in asset quality following the agreement reached on Project Helix 3, as well as in organically
reducing problem assets since the end of 2019, despite an adverse operating environment in Cyprus,
together with an expectation that this trend will continue in the near future.
Strategic priorities for the medium-term
The Group is a diversified, leading, financial and technology hub in Cyprus. It has delivered significant
progress against its strategy announced in November 2020 and this has allowed the Group to update its
medium term strategic targets with an increased focus on creating shareholder value. In February 2022, the
Group increased its medium term return on tangible equity (ROTE) target to over 10%, providing the
foundations for a return of dividend distributions, subject to performance and relevant approvals.
The medium-term strategic priorities of the Group are clear, with a renewed focus on growing revenues in a
more capital efficient way, whilst striving for a leaner operating model. In addition, the Group continues to
focus on further strengthening its asset quality, whilst maintaining a good capital position, in order to
continue to play a vital role in supporting the recovery of the Cypriot economy. Moreover, the Group has set
the foundations to enhance its organisational resilience and ESG (Environmental, Social and Governance)
agenda and continues to work towards building a forward-looking organisation with a clear strategy
supported by effective corporate governance aligned with ESG agenda priorities. Delivery on the medium
term strategic priorities of the Group is enabled by the Group’s transformation plan.
Despite the uncertainties associated with the Ukrainian crisis (further details are provided below), the Group
intends to continue executing its strategy in a disciplined manner in 2022 and beyond, focusing on
improving sustainable profitability by growing revenues, while remaining disciplined on costs and capital.
Growing revenues in a more capital efficient way
The Group has a renewed focus on growing revenues in a more capital efficient way. It aims to grow its high
quality new lending, drive growth in niche areas for further market penetration and diversify through non-
banking services, such as insurance and digital products.
The accelerated de-risking of the balance sheet and the expected non-extension of the favourable terms of
the TLTRO borrowing post June 2022 are expected to increase pressure on net interest income (NII) in the
near term. This is expected to gradually recover from 2023 onwards as loan expansion and margin
stabilisation more than offset the foregone NII.
Separately, the Group aims to increase revenues through multiple less capital-intensive initiatives, with a
focus on fees and commissions, insurance and non-banking opportunities, leveraging on the Group’s digital
capabilities.
Gradual recovery of NII
Over the medium-term, the Group aims to improve its NII through the growth of its net performing book by
approximately 6% per annum and margin stabilisation, with an expected contribution to return on tangible
equity (ROTE) in 2025 of an increase of approximately 1%.
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Business Overview (continued)
Strategic priorities for the medium-term (continued)
The Group has continued to provide high quality new loans via prudent underwriting standards. Growth in
new lending in Cyprus has been focused on selected industries more in line with the target risk profile of
BOC PCL. During 2021, new lending amounted to €1.8 billion, increased by 33% on the prior year and
recovering towards pre-pandemic levels (at approximately 90% of 2019 levels). Demand for new loans is
picking up, driven mainly by corporate (up by 34% compared to the prior year), as economic activity
continues to improve. At the same time, the demand for retail housing loans remained strong, supported by
the Government interest rate subsidy scheme (expired on 31 December 2021). New housing loans of
approximately €355 million were approved by BOC PCL under the scheme. Aiming at supporting
investments by SMEs and Mid-Caps, BOC PCL continues its collaboration with the European Investment
Bank (EIB), the European Investment Fund (EIF) and the Cyprus Government.
Over the medium-term, high quality new lending is expected to reach approximately €9 billion, as economic
growth is expected to continue in 2022-2025. Significant deleveraging of the Cyprus economy of the past
seven years is coming to an end. The Group aims to benefit from its strong market position; to help deploy
the Cyprus Recovery and Resilience Fund; to grow shipping and international corporate lending with
prudency; and to explore market opportunities in trades of performing loans in Cyprus. At the same time, it
aims to support its customers in the transition to a sustainable future through, for example, the provision of
environmentally friendly products.
The growth of net interest income over the medium-term is expected to be further supported by margin
stabilisation. The Group uses conservative interest rate assumptions in its business plan and is well
positioned for rising rates given high levels of liquidity. It also applies conservative assumptions for fixed
income investments. It has factored in the increased funding cost resulting from further MREL issuances and
the expectation that the favourable TLTRO borrowing terms will not be extended post June 2022.
Non-NII: growth in a more capital efficient way
Over the medium-term, the Group aims to increase revenues other than net interest income, through
multiple less capital-intensive initiatives, with a focus on fees and commissions, insurance and non-banking
opportunities, leveraging on the Group’s digital capabilities, with an expected contribution to return on
tangible equity (ROTE) in 2025 of an increase of approximately 1.5%-2.0%.
In 2021, net fee and commission income amounted to €172 million, increased by 19% on the prior year and
exceeded pre-pandemic levels in 2019. The increase reflects higher volume of transactions, as well as the
extension of liquidity fees to a broader group of corporate clients and the introduction of a revised price list
for charges and fees, both implemented as of 1 February 2021.
Over the medium-term, net fee and commission income from banking activities is expected to increase at a
rate of 4% per annum, supported by price adjustments and increased activity as the economy recovers.
Liquidity fees are expected to be applied to an amended universe of deposits, whilst BOC PCL will pursue to
convert deposits to products with a higher return for customers mainly through its Wealth services.
In addition, the Group aims to increase the average product holding per retail customer over the medium
term through further cross-selling of cards, digital loans, wealth and insurance products, to the under-
penetrated customer base via re-designing the operational model, client segmentation and catering to
different customer niches.
Management is placing emphasis on diversifying income streams by optimising fee income from
international transaction services, wealth management and insurance. The Group’s insurance companies,
EuroLife Ltd and General Insurance of Cyprus Ltd (GIC) operating in the sectors of life and general
insurance respectively, are leading players in the insurance business in Cyprus, and have been providing a
stable, recurring income, further diversifying the Group’s income streams. The insurance income net of
claims and commissions for 2021 contributed to 21% of non-interest income and amounted to €61 million,
up 9% compared to the prior year, mainly due to higher gross written premiums, partly offset by the net
impact from the changes in the discount rate in the life insurance business and by higher costs and claims in
the general insurance business (as claims in 2020 had been positively impacted by lockdowns). Specifically,
Eurolife increased its total regular income by 8% on a yearly basis, whilst GIC increased its gross written
premiums by 8% on a yearly basis.
24
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Business Overview (continued)
Strategic priorities for the medium-term (continued)
There are initiatives underway to enhance revenues from the insurance business in the medium term. The
Group currently has sustainable healthy profitability from its insurance business and it is aiming for further
growth leveraging on the strong market share of BOC PCL. The impact of IFRS 17 as of 1 January 2023
remains uncertain, but it is not expected to significantly impact the return on tangible equity in the medium
term.
In the life insurance business, further growth is expected to be driven through the pursuit of new market
segments with higher margin potential (such as business insurance, or income protection), exploring
opportunities in the occupational pensions market and the launch of new products and investment funds. At
the same time, Eurolife Ltd is expected to widen its target market leveraging on its revamped
bancassurance model. Internally, Eurolife Ltd aims to strengthen its agency force organically and improve
productivity through digitisation and campaigns. Leveraging on the Group’s digital capabilities, the customer
experience is expected to be upgraded via enhanced self-service capabilities, such as the myeurolife portal.
In the non-life insurance business, further growth is expected through widening the target market
leveraging on the revamped bancassurance model, exploiting synergies with the life insurance agency force
and focusing on profitable business segments (such as fire and liability). GIC also aims to strengthen its
penetration in the profitable segments of the market's motor sector. Centralisation and automation of the
claims handling process, as well as further digital growth will be enabled by further digitisation.
Finally, the Group aims to introduce the Digital Economy Platform to generate new revenue sources over
the medium term, leveraging on BOC PCL’s market position, knowledge and digital infrastructure. The
Platform aims to bring stakeholders together to drive opportunities in lifestyle banking and beyond.
This platform is expected to allow BOC PCL to enhance the engagement of its customer base, attract new
customers, optimise the cost of its own processes, and position BOC PCL next to the customer at the point
and time of need.
Lean operating model
Striving for a lean operating model is a key strategic pillar for the Group in order to deliver shareholder
value in the medium term. Management also expects that restructuring costs will be effectively eliminated
as balance sheet de-risking is largely complete. These actions are expected to contribute an increase of
approximately 2.5%-3.0% to return on tangible equity (ROTE) in 2025. The Group focuses on continuing to
deliver on the cost agenda, as well as improving operating efficiency, whilst funding its digital
transformation and investing in the business.
The digital transformation of the Group that started in 2017 has begun to deliver an improved customer
experience, whilst the branch footprint rationalisation to date, has further improved BOC PCL’s operating
model. The branch network is now less than half the size it was in 2013.
Management remains focused on further improvement in efficiency over the medium term, through for
example further branch footprint optimisation and further exit solutions to release full time employees.
It is expected that total operating expenses will remain below €350 million in 2025, despite inflationary
pressures, whilst continuing to fund digitisation and further investing in the business. The cost to income
ratio is expected to rise in 2022 as revenues remain under pressure and operating expenses increase due to
higher IT/digitisation investment costs, before improving to 50%-55% by 2025.
Transformation plan
The Group continues to work towards becoming a more customer centric organisation. A transformation
plan is in progress to enable modern banking by digitally transforming customer service, as well as internal
operations. The transformation plan will enable delivery on the Group’s strategic pillars, with key shifts
focusing on a leaner and more efficient operating model, profitability and optimisation of the client service
and distribution models with an emphasis on the customer. For further details on examples of the
transformation that is expected to be achieved please refer to slide 35 of the presentation for the Group
Financial Results for the year ended 31 December 2021.
25
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Business Overview (continued)
Strategic priorities for the medium-term (continued)
Digital transformation
BOC PCL’s digital transformation focuses on developing digital services and products that improve the
customer experience, streamlining internal processes, and introducing new ways of working to improve the
workplace environment.
In 2021, BOC PCL continued to invest in its digital products, further strengthening its competitive
advantage. Among new digital capabilities, a new service was added in BOC PCL’s digital portfolio, that
allows online identity verification for legal entity-related individuals to assist the process of onboarding
those entities in BOC PCL. The whole activity can be now completed by the customers and the IBS
(International Banking Services) staff in a faster, more efficient way. Furthermore, BOC PCL invested in the
enhancement of the usage and transaction security through the introduction of a new user verification and
transaction monitoring mechanisms in its mobile app and web channels.
The adoption of digital products and services continued to grow and gained momentum in 2021 and in
January 2022. As at the end of January 2022, 89.4% of the number of transactions involving deposits, cash
withdrawals and internal/external transfers were performed through digital channels (up by approximately
23.0 p.p. from 66.4% in September 2017 when the digital transformation programme was initiated). In
addition, 78.8% of individual customers were digitally engaged (up by 18.6 p.p. from 60.2% in September
2017), choosing digital channels over branches to perform their transactions. As at the end of January
2022, active mobile banking users and active QuickPay users have grown by 20% and 43% respectively in
the last 12 months. The highest number of QuickPay users to date was recorded in January 2022 with 131
thousand active users. Likewise, the highest number of QuickPay payments was recorded in December 2021
with 395 thousand transactions. The transition to the new renewed Internet Banking platform, was launched
in March 2022 offering to the customers a fresh banking experience. New tools, such as defining and
managing budgets, as well as the ability to have an overall view of finances, and the opening of new lending
products entirely through the Group’s digital channels, will soon be available to customers.
Moreover, significant changes are being implemented to enable a more modern and efficient workplace.
New technologies and tools have been introduced that will significantly improve employee collaboration and
knowledge sharing across the organisation.
Strengthening asset quality
Ensuring BOC PCL’s loan portfolio quality remains healthy is a priority for the Group. Whilst maintaining high
quality new lending, BOC PCL aims to complete legacy de-risking, normalise cost of risk and reduce (other)
impairments, whilst managing post-pandemic NPE inflows. Collectively these de-risking actions are
expected to contribute an increase of approximately 2.5%-3.0% to return on tangible equity (ROTE) in
2025.
During 2021, the Group completed Project Helix 2 and reached agreement on Project Helix 3. Overall in
2021, and including organic NPE reductions of approximately €400 million, the Group reduced its NPEs by
75% and its NPE ratio to 7.5%, on a pro forma basis. For further information please refer to Section ‘Loan
portfolio quality’ above.
The Group has early achieved its previous 2022 target for a single digit NPE ratio and has updated its
strategic target of achieving an NPE ratio of approximately 5% by the end of 2022 and of less than 3% by
the end of 2025. At the same time, the Group will continue to closely monitor the performance of loans
under expired payment deferrals and a year after deferral expiry, the performance is better than initially
expected.
Enhancing organisational resilience and ESG (Environmental, Social and Governance) agenda
Moving to a sustainable economy is the challenge of our time. As part of its vision to be the leading financial
hub in Cyprus, BOC PCL is determined to lead the transition of Cyprus to a sustainable future.
The Group has set the foundations to enhance its organisational resilience and ESG (Environmental, Social
and Governance) agenda and continues to work towards building a forward-looking organisation with a clear
strategy supported by effective corporate governance aligned with ESG agenda priorities.
In 2022, the Company received a rating of AA (on a scale of AAA-CCC) in the MSCI ESG Ratings
assessment. In 2020, BOC PCL received a rating of A in the MSCI ESG Ratings assessment.
26
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Business Overview (continued)
Strategic priorities for the medium-term (continued)
In 2021, the first ESG strategy of the Group was formulated, whereby, in addition to maintaining its leading
role in the social and governance pillars, there will be a shift of focus on increasing BOC PCL’s positive
impact on the environment by transforming not only its own operations, but also of its client chain.
BOC PCL has committed to the following primary ESG targets, which reflect the pivotal role of ESG in BOC
PCL’s strategy:
Become carbon neutral by 2030
Become Net Zero by 2050
Steadily increase Green Asset Ratio
Steadily increase Green Mortgage Ratio
A representation of at least 30% women in Group’s management bodies (defined as the
Executive Committee (EXCO) and the extended EXCO) by 2030.
Environment
An ESG roadmap has been established to seize new opportunities, reduce risk and comply with regulatory
requirements and market expectations.
To ensure delivery on its ambition, BOC PCL is in the process of formulating a long-term working plan that
covers areas such as decarbonisation of BOC PCL’s own operations and portfolio, risk identification and
impact assessment, and streamlining of BOC PCL’s policies with the ESG strategy. More specifically, the
decarbonisation initiative has commenced in 2022. As a first step, BOC PCL will calculate its own carbon
footprint and formulate a decarbonisation plan to become carbon neutral by 2030. A road map with specific
carbon reduction targets and KPIs will be established that will enable the BOC PCL to achieve its
decarbonisation goals.
Work is already underway on data requirements and policy updates. BOC PCL is in the process of identifying
its ESG data needs and their availability based on upcoming regulatory requirements, as well as its ESG
strategic goals, with the objective to address these needs in due time. Work has also been initiated and will
continue into 2022, to determine the climate related and environmental risks BOC PCL is exposed to, so
that these can be integrated into the existing risk taxonomy and risk registry of BOC PCL and inform its
various business processes. Finally, several policies have been updated, and this effort will continue in the
coming years, as it will be conducive in streamlining operations and culture with BOC PCL’s ESG ambition.
At the same time, BOC PCL will intensify its support to its clients and communities in becoming increasingly
sustainable and will respond to the heightened importance the Company’s investors and shareholders attach
to ESG matters. BOC PCL has the commitment, the scale and the reach to deliver the desired change across
Cyprus in the coming years. Environmentally friendly products have been launched, and BOC PCL will
continue to enrich its products and services in line with its ESG Strategy and the Recovery and Resilience
Plan for Cyprus.
Social Pillar
At the centre of the leading social role of BOC PCL lie its investments in the Bank of Cyprus Oncology Centre
(with an overall investment of approximately €70 million since 1998, whilst 60% of diagnosed cancer cases
in Cyprus are being treated at the Centre), the work of SupportCY. Network developed in 2020 and
expanded further in 2021, the contribution of the Bank of Cyprus Cultural Centre in promoting the cultural
heritage of the island, and the education of over 30 entrepreneurs and financial support of €60.000
provided via the IDEA Innovation Centre in 2021. Staff has continued to engage in voluntary initiatives to
support charities, foundations and people in need.
BOC PCL’s staff members remain a key factor in achieving its objectives. In order to maintain its high-
performance culture, BOC PCL has continued to upgrade its staff’s skill set by providing training and
development opportunities to all staff, and capitalising on modern delivery methods. In 2021, BOC PCL
continued to place special emphasis on staff wellness offering seminars on Healthy Eating, Mental Health in
the workplace and Financial Planning to 630 employees, through its ‘Well at Work program’.
The Group’s commitment in safeguarding gender equality in the workplace has been translated into policies
and practices over the years. In 2021, the Group received a Certificate by the Ministry of Labour, Welfare
and Social Insurance for applying good practices for gender equality in the working environment.
27
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Business Overview (continued)
Strategic priorities for the medium-term (continued)
Governance Pillar
The Group continues to operate successfully within a complex regulatory framework of a holding company
which is registered in Ireland, listed on two Stock Exchanges and run by a number of rules and regulations.
Its governance and management structures enable it to achieve present and future economic prosperity,
environmental integrity and social equity across its value chain. The Group operates within a framework of
prudent and effective controls, which enable risk assessment and risk management based on the relevant
policies under the leadership of the Board of Directors.
The Group has set up a robust Governance Structure to oversee its ESG agenda.
Progress on the implementation and evolution of the Group’s ESG strategy is monitored by the
Sustainability Committee and the Board of Directors. The Sustainability Committee is a dedicated executive
committee set up in early 2021 to oversee the ESG agenda of the Group, review the evolution of the
Group’s ESG strategy, monitor the development and implementation of the Group's ESG objectives and the
embedding of ESG priorities in the Group’s business targets. BOC PCL’s regulatory compliance continues to
be an undisputed priority.
The Board composition of the Company and BOC PCL is diverse, with one third of the Board members being
female as at 31 December 2021. The Board displays a strong skill set stemming from broad international
experience. Moreover, BOC PCL aspires to achieve a representation of at least 30% women in Group’s
management bodies (defined as the EXCO and the Extended EXCO) by 2030. As at 31 December 2021,
there is a 24% representation of women in Group’s management bodies and 38% representation of women
at key positions below the Extended EXCO level (defined as positions between Assistant Manager and
Manager A).
COVID-19 impact
The Group continues to closely monitor developments in, and the effects of COVID-19 on both the global
and Cypriot economy. Strong recovery in economic activity marked the second half of the year, against the
backdrop of increasing vaccination coverage across Cyprus and relaxation of restrictions. At the same time,
the Group has continued its focus on providing support to its customers, staff and community. The Group
will continue to monitor the situation for any changes that may arise from the uncertainty on the
macroeconomic outlook, impacted by the additional progress in vaccinations and medication, degree of
recurrence of the disease due to virus mutations, and the persistent positive effect of fiscal and monetary
policy.
Upon the outbreak of COVID-19 in March 2020, the Pandemic Incident Management Plan of the Group was
invoked and a dedicated team (Pandemic Incident Management Team) has been monitoring the situation
domestically and globally and providing guidance on health and safety measures, travel advice and business
continuity for the Group. Local government guidelines are being followed in response to the pandemic.
In accordance with the Pandemic Plan, the Group adopted a set of measures, which are still in place
according to the current pandemic status, to ensure minimum disruption to its operations. The Pandemic
Incident Management Team and the Crisis Management Committee continue to closely monitor the dynamic
COVID-19 pandemic developments and status. The Group replaced face-to-face meetings with
telecommunications, adjusting the customary etiquette of personal contact, including those with customers.
Staff of critical functions has been split into separate locations. In addition, to ensure continuity of business,
a number of employees have been working from home and the remote access capability has been upgraded
significantly, whilst at the same time maintaining relevant control procedures to ensure authorisation in line
with the Group's governance structure. Additionally, the Group follows strict rules of hygiene, increased
intensity of cleaning and disinfection of spaces, and other measures to protect the health and safety of staff
and customers.
The potential economic implications for the sectors in which the Group is active have been assessed and
possible mitigating actions for supporting the economy have been identified, such as supporting viable
affected businesses and households with new lending to cover liquidity, working capital, capital expenditure
and investments related to the activity of the borrower.
The package of policy measures announced by the ECB and the European Commission, as well as the
unprecedented fiscal and other measures of the Cyprus Government, have helped and should continue to
help reduce the negative impact and support the recovery of the Cypriot economy.
28
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Business Overview (continued)
Ukrainian crisis
In light of the recent developments in respect of the Russian invasion of Ukraine that started at the end of
February 2022, the Group is closely monitoring the developments and utilizing dedicated governance
structures including Crisis Management as required. Beginning in February 2022, in response to the crisis in
Ukraine, the EU, UK and the U.S., in a coordinated effort joined by several other countries, imposed a
variety of new sanctions with respect to Russia, Belarus and certain regions of Ukraine, as well as various
related entities and individuals. The Group’s policy is to comply with all applicable laws, including sanctions
and export controls. At present, numerous complex regimes are developing rapidly in response to the
military conflict and the Group is working carefully and assiduously to comply with all relevant requirements
and to address their potential consequences.
Although the Group’s direct exposure to Russia, Ukraine or Belarus is limited, the crisis in Ukraine may have
an adverse impact on the Cypriot economy, mainly due to a negative impact on the tourism and
professional services sectors, increasing energy prices resulting in inflationary pressures, and disruptions to
global supply chains. In the event that a significant decrease in the number and volume of transactions
occur as a result of the crisis, this may adversely impact transactional net fee and commission income for
the Group, particularly in International Banking Services.
Overall, the Group expects limited impact from its direct exposure, while any indirect impact will depend on
the duration and severity of the crisis and its impact on the Cypriot economy, which remains uncertain at
this stage. The Group will continue to closely monitor the situation, taking all necessary and appropriate
measures to minimise the impact on its operations and financial performance, as well as to manage all
related risks and comply with the applicable sanctions.
Strategy and Outlook
The strategic objectives for the Group are to become a stronger, safer and a more efficient institution
capable of supporting the recovery of the Cypriot economy and delivering appropriate shareholder returns
in the medium term.
The key pillars of the Group’s strategy are to:
Grow revenues in a more capital efficient way; by enhancing revenue generation via growth in
performing book and less capital-intensive banking and financial services operations (Insurance
and Digital Economy)
Improve operating efficiency; by achieving leaner operations through digitisation and automation
Strengthen asset quality; maintaining high quality new lending, completing legacy de-risking,
normalising cost of risk and reducing (other) impairments, whilst managing post pandemic NPE
inflows
Enhance organisational resilience and ESG (Environmental, Social and Governance) agenda; by
continuing to work towards building a forward-looking organisation with a clear strategy
supported by effective corporate governance aligned with ESG agenda priorities
29
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Strategy and Outlook (continued)
KEY STRATEGIC PILLARS
ACTION TAKEN IN 2021 AND
TO DATE
PLAN OF ACTION
Growing revenues in a more
capital efficient way; by enhancing
revenue generation via growth in
performing book, and less capital-
intensive banking and financial
services operations (Insurance and
Digital Economy)
Liquidity fees to a broader
group of corporate clients
was introduced as of 1
February 2021
New price list for charges and
fees was implemented as of
1 February 2021
For further information,
please refer to Section
‘Business Overview’
Grow net performing book by
approximately 6% p.a. and
extend new lending by
approximately €9 billion over the
medium term.
Enhance fee and commission
income, e.g. on-going review of
price list for charges and fees,
increase average product holding
through cross selling, new
sources of revenue through
introduction of Digital Economy
Platform
Profitable insurance business
with further opportunities to
grow, e.g. focus on high margin
products, leverage on BOC PCL’s
strong franchise and customer
base for more targeted cross
selling enabled by digital
transformation
Improving operating efficiency; by
achieving leaner operations
through digitisation and
automation
Completion of a small-scale
targeted voluntary staff exit
plan (VEP) in December
2021, through which
approximately 100 of the
Group’s full-time employees
were approved to leave at a
total cost of €16 million;
gross annual savings
estimated at approximately
3% of staff costs
Renewal of collective
agreement for 2021-2022
with an expected increase in
staff costs for 2021 and 2022
by 3-4% per annum, in line
with the impact of renewals
in previous years.
Further developments in the
Transformation Plan and the
digitisation of BOC PCL
For further information,
please refer to Section
‘Business Overview’
Offer exit solutions to release full
time employees
Achieve further branch footprint
rationalisation
Effectively eliminate
restructuring costs as de-risking
is largely complete
Enhance procurement control
Contain total operating expenses
to less than €350 million in
2025, despite inflationary
pressures, whilst funding
digitisation and further
investment in the business
30
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Strategy and Outlook (continued)
KEY STRATEGIC PILLARS
ACTION TAKEN IN 2021 AND
TO DATE
PLAN OF ACTION
Strengthening asset quality
Completion of Project Helix 2
(sale of NPE portfolios with
gross book value of €1.3
billion) in June 2021
Agreement for the sale of
NPE portfolio with gross book
value of €0.6 billion in
Project Helix 3.
On a pro forma basis, in
2021 the NPE stock reduced
by €2.3 billion to €0.8 billion,
and the NPE ratio to 7.5%,
including Helix 3, Helix 2 and
organic reductions.
Single digit NPE ratio (pro
forma for HFS) achieved
earlier than initially
anticipated
For further information,
please refer to Section ‘Loan
portfolio quality’ and Section
‘Business Overview’
The Group is on track to achieve
an updated strategic target of
NPE ratio of approximately 5%
by the end of 2022 and of less
than 3% by the end of 2025
Enhancing organisational resilience
and ESG (Environmental, Social
and Governance) agenda
BOC PCL reached agreement
with the Cyprus Union of
Bank Employees for the
renewal of the collective
agreement in respect of 2021
and 2022. The agreement
relates to certain changes
including the introduction of
a new pay grading structure
linked to the value of each
position of employment, and
of a performance-related pay
component as part of the
annual salary increase, both
of which have been long-
standing objectives of BOC
PCL and are in line with
market best-practice.
First ESG strategy approved
at Board level
For further information,
please refer to Section
‘Business Overview’
Please refer to slide 28 of the
Group Financial Results
Presentation for the year
ended 31 December 2021
Implement ESG strategy with a
shift of focus on environment
Embed ESG sustainability in the
BOC PCL’s culture
Continuous enhancement of
structure and corporate
governance
Invest in people and promote
talent
The Group has delivered significant progress against its strategy communicated in November 2020, setting
the path to normalising the balance sheet and achieving adequate sustainable returns. The single digit NPE
ratio has been reached a year ahead of plan, whilst strengthening capital well above regulatory
requirements. The post-moratoria performance has exceeded expectations, allowing for a swifter
normalisation in cost of risk.
This delivery, has allowed the Group to update its business plan and upgrade its medium term strategic
targets with an increased focus on creating shareholder value. The macro assumptions applied in updating
the business plan exclude unexpected materially adverse developments such as the Ukrainian crisis, a
situation the Group is monitoring closely.
The Group has a renewed focus on growing revenues in a more capital efficient way. It aims to grow its high
quality new lending, drive growth in niche areas for further market penetration and diversify through non-
banking services, such as insurance and digital products.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Strategy and Outlook (continued)
The Group focuses on continuing to deliver on the cost agenda, as well as improving operating efficiency,
despite inflationary pressures, whilst funding its digital transformation and further investing in the business.
The cost to income ratio is expected to rise in 2022 as revenues remain under pressure and operating
expenses increase due to higher IT/digitisation investment costs, before improving to 50%-55% by 2025.
As the balance sheet de-risking is largely complete, the Group’s priorities include maintaining high quality
new lending and normalising the cost of risk and other impairments, whilst managing the post-pandemic
NPE inflows.
Sustainability will continue to be embedded in the Group’s culture, as BOC PCL aims to lead the transition to
a sustainable future. BOC PCL has the commitment, the scale and the reach to deliver the desired change
across Cyprus in the coming years.
The Group has a clear strategy in place, leveraging on its strong customer base, its renewed customer trust,
its market leadership position, and further developing digital knowledge and infrastructure, with a clear
focus on creating shareholder value. The Group now increases its medium term return on tangible equity
(ROTE) target to over 10%, providing the foundations for a return of dividend distributions, subject to
performance and relevant approvals.
The Group’s updated medium term strategic targets are set out below:
Key Metrics
2021 2023
Updated Medium
Term Strategic
Targets 2025
Profitability
Return on Tangible Equity
(ROTE)
1.8%
Mid-single digit
on trajectory to
consider
dividend
distribution
2
>10%
Cost to income ratio
1
60% 50%-55%
Asset Quality NPE ratio 7.5%
3
<5% <3%
Cost of risk 57 bps 40-50 bps
Capital
CET1 ratio
15.8%
3
(fully
loaded 14.3%
3
)
Supported by CET1 ratio of 13.5%-
14.5%
1. Excluding special levy on deposits and other contributions.
2. Subject to performance and relevant approvals.
3. Pro-forma for HFS.
Maintaining a strong capital base has been a key priority for management over the past few years and this
remains equally important for the Group going forward. The Group currently maintains a robust capital
position; as at 31 December 2021, the Group’s pro forma capital ratios were 15.8% for the CET1 ratio on a
transitional basis and 14.3% on a fully loaded basis. The Group considers that a CET1 ratio of 13.5%-14.5%
would be appropriate for a normalised Bank of Cyprus Group. The Group’s organic capital generation is to
be supported by the improving Return on Tangible Equity (ROTE). Going forward, capital will be deployed
for organic growth of the loan book, investment in the business, against regulatory impacts and one-off cost
optimisation charges.
Despite the remaining challenges associated with the COVID-19 pandemic and the uncertainties associated
with the Ukrainian crisis the Group intends to continue executing its strategy in a disciplined manner in
2022 and beyond, focusing on improving sustainable profitability by growing revenues, while remaining
disciplined on costs and capital. The Group continues to work towards its 2025 financial targets, supported
by its ongoing strategy execution.
Going concern
The Directors have made an assessment of the Group’s ability to continue as a going concern for a period of
12 months from the date of approval of the Consolidated Financial Statements.
The Directors have concluded that there are no material uncertainties which would cast significant doubt
over the ability of the Group, the Company and BOC PCL to continue to operate as a going concern for a
period of 12 months from the date of approval of the Consolidated Financial Statements.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Going concern (continued)
In making this assessment, the Directors have considered a wide range of information relating to present
and future conditions, including projections of profitability, cash flows, capital requirements and capital
resources, taking also into consideration, the Group’s Financial Plan approved by the Board in February
2022 (the ‘Plan’) and the operating environment (as set out in Section ‘Operating Environment’ in the
Directors' Report). The Group has sensitised its projection to cater for downside scenarios and has used
conservative economic inputs to develop its medium term strategy. The Group is working towards
materialising its Plan.
Capital
The Directors and Management have considered the Group’s forecasted capital position, including the
potential impact of a deterioration in economic conditions. The Group's capital position as at 31 December
2021 is higher than 31 December 2020, both on an as reported basis and on a pro-forma basis, placing the
Group in an improved position to withstand adverse scenarios. The Group has developed capital projections
under base and adverse scenario and the Directors believe that the Group has sufficient capital to meet its
regulatory capital requirements throughout the period of assessment.
Funding and liquidity
The Directors and Management have considered the Group’s funding and liquidity position and are satisfied
that the Group has sufficient funding and liquidity throughout the period of assessment. The Group
continues to hold a significant liquidity buffer at 31 December 2021 considerably higher than 31 December
2020 that can be easily and readily monetised in a period of stress.
Viability statement
In accordance with the requirements of Provision 31 of the UK Corporate Governance Code 2018 (UK Code),
the Directors have assessed the viability of the Group, taking account of the Group’s current position and
the potential impact of the main risks that the Group is facing.
Time horizon
The Directors have selected a three-year period for this assessment in arriving at the viability statement.
This period is chosen as it is within the period covered by the formal Financial Plan approved by the Board
which contains projections of profitability, capital and liquidity requirements and capital resources as well as
within the period covered by the Group’s stress testing programmes. This period is representative of the
time horizon to consider the impact of ongoing regulatory changes in the financial services industry. The
Group’s updated Financial Plan covers the period 2022–2025.
Planning process and assessment
The Directors have assessed the prospects of the Group through a number of sources, including the latest
Financial Plan of the Group, the NPE Strategy Plan, the Internal Capital Adequacy Assessment Process
(ICAAP) and the Internal Liquidity Assessment Process (ILAAP) reports.
The Group’s financial plan takes account of the Group’s strategy, risk appetite and objectives in the context
of its operating environment including actual and reasonably expected changes in the Cyprus
macroeconomic environment, competitive landscape, margin pressures and capital requirements. The
Board-approved risk appetite framework is a key consideration of the Group's Financial Plan. Risks to the
achievement of the Financial Plan are identified and assessed through a Risk Assessment of the financial
plan. Performance against the risk appetite for each of the risk indicators is reported to the Board on a
regular basis.
The Group has prepared a detailed NPE Strategy Plan for the 3-year period 2021-2023 as requested by the
Single Supervisory Mechanism (SSM). The NPE Strategy Plan was approved by the Board of Directors of the
Company and submitted to the SSM in March 2021. The annual update of the strategy for years 2022-2024
is planned to be submitted to the ECB on 31 March 2022. The NPE Strategy Plan is broadly consistent with
the actions incorporated in the Financial Plan.
The ICAAP is an annual process whose main role is to assess the Group’s capital adequacy in relation to the
level of underlying risks it is, or might be, exposed to (i.e. risks that may arise from pursuing the Group’s
strategy or from changes in its operating environment). More specifically, the ICAAP process analyses,
assesses and quantifies the Group’s risks, establishes the current and future capital needs for the risks
identified and tests the Group’s absorption capacity under both the baseline scenario and stress testing
conditions, aiming to demonstrate that the Group has sufficient capital, under both the base and stress case
scenarios, to support its business and achieve its strategic objectives having regard to its Board-approved
Risk Appetite and Strategy.
33
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Viability statement (continued)
The Group’s ILAAP analysis demonstrates that the volume and capacity of liquidity resources available to
the Group are adequate to support its business model, to achieve its strategic objectives under both the
business as usual and severe stress scenarios and to meet regulatory requirements including the LCR and
NSFR.
The Group also undertakes two quarterly reviews of its ICAAP results considering the latest actual and
forecasted information. During the quarterly review, the Group’s risk profile and risk management policies
and processes are reviewed and any changes since the annual ICAAP exercise are taken into consideration.
The Group has prepared a review of its ICAAP with reference dates of 30 June 2021 and 30 September
2021, which indicated that the Group has sufficient capital and available mitigants to support its risk profile,
its business and to enable it to meet its regulatory requirements, both in the base and adverse scenarios.
The current year’s ICAAP and ILAAP packages are in advanced stages of completion and will be submitted
for approval to the Board of Directors through the Assets and Liabilities Committee (ALCO) and to the SSM
by the end of April 2022. The base case of the ICAAP report is the latest financial plan of the Group
approved by the Board in February 2022.
Risk management
The Group identifies, assesses, manages and monitors its risk profile based on the disciplines outlined
within its Risk Management Framework. The Group is exposed to a number of risks, the most significant of
which are credit risk, liquidity and funding risk, market risk (arising from adverse movements in exchange
rates, interest rates and adverse movements in property prices), operational risk (mainly legal risk,
information technology and data risks), capital risk and strategic risk. These risks are monitored, managed
and mitigated through various control mechanisms and processes set out in the 'Principal risks and
uncertainties-Risk management and mitigation' section below.
Further, stress testing is an integral risk management principle used to assess the financial and operational
resilience of the Group. Stresses are performed to assess capital adequacy, liquidity and funding mix.
Internal scenarios used for the ICAAP are designed to be extreme but plausible and take account of
potential risk management actions. Reverse stress testing is also used to assess scenarios and
circumstances that could make the Group’s business model unviable. These exercises begin with a definition
of business model failure – e.g. capital adequacy thresholds – and then analyse the events that could cause
that failure. The results are reported to the Board Risk Committee and the Board.
The Group has identified a suite of management actions which can be implemented to manage and mitigate
the impact of stress scenarios. Management actions impact on capital, liquidity and recovery planning under
stress conditions is assessed. This enables the Group to understand, monitor and control the risks identified.
Management believes that the stress testing process considers a range of severe but plausible scenarios.
However, stress tests should not be assumed to be an exhaustive assessment of all possible hypothetical
extreme or remote scenarios.
In making their viability assessment the Directors have considered a wide range of detailed information
relating to present and potential conditions, including projections for profitability, cash flows, capital
requirements and capital resources.
The effects of COVID-19 and associated government responses remained an important consideration
particularly in relation to the impacts on customers – including the cessation of government support
schemes and the likely trajectory of the overall recovery. The impact of the pandemic, including the
emergence of the Omicron variant and potential aftershocks are subject to continuous monitoring.
The Group has sensitised its projections to cater for downside scenarios and has used conservative
economic inputs. The Financial Plan adverse scenario considers the capital forecast for the Group, and its
ability to withstand adverse scenarios such as the deterioration of the economic environment in Cyprus.
In addition to the information outlined above, the Directors have also considered a wide range of
information and number of factors including but not limited to:
Details of the Group’s business and operating models, and strategy.
Details of the Group’s approach to managing risk and allocating capital.
The Group’s financial position considering performance, its ability to maintain minimum levels of
regulatory capital, liquidity and funding and the minimum requirements for own funds and eligible
liabilities over the period of the assessment. Notable are the risks that the Directors believe could
affect the Group’s results and operations thus adversely impacting any of the above.
34
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Viability statement (continued)
The Group’s capital position - CET1 and TCR as at 31 December 2021 stands at 15.14% and
20.01% respectively.
The Group’s strong liquidity position - LCR as at 31 December 2021 at 298%.
The Directors confirm that based on their assessment of the principal risks and the assessment of the
Group’s current position and prospects, the Directors have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall due over the period to 31 December 2024.
Capital base
Εquity totalled €2,059 million at 31 December 2021, compared to €2,051 million at 31 December 2020. The
CET1 ratio (transitional) stood at 15.14% at 31 December 2021 and at 14.80% at 31 December 2020.
During the year ended 31 December 2021, the CET1 ratio was positively affected mainly by pre-provision
income and the decrease in risk-weighted assets (RWA), and negatively affected mainly by provisions and
impairments, the phasing-in of IFRS 9 transitional arrangements on 1 January 2021, the prudential charge
relating to the Group’s foreclosed assets, the cost relating to the tender process for the existing Tier 2
Capital Notes and the cost of the Voluntary Staff Exit Plan. The Total Capital ratio (transitional) at 31
December 2021 stood at 20.01% (2020: 18.35%).
Additional information on the regulatory capital is disclosed in the 'Additional Risk and Capital Management
Disclosures' which form part of this Annual Report and in the Pillar III Disclosures Report, which is published
on the Group’s website.
Share capital
As at 31 December 2021, there were 446,199,933 issued ordinary shares with a nominal value of €0.10
each. Information about the authorised and issued share capital during 2021 and 2020 is disclosed in Note
35 to the Consolidated Financial Statements.
Share-based payments - share options
Following the incorporation of the Company and its introduction as the new holding company of the Group in
January 2017, the Long-Term Incentive Plan was replaced by the Share Option Plan which operates at the
level of the Company. The Share Option Plan is identical to the Long-Term Incentive Plan except that the
number of shares in the Company to be issued pursuant to an exercise of options under the Share Option
Plan should not exceed 8,922,945 ordinary shares of a nominal value of €0.10 each and the exercise price
was set at €5.00 per share. The term of the options was also extended to between 4-10 years after the
grant date.
No share options were granted since the date of replacement of the Long-Term Incentive Plan by the Share
Option Plan at the level of the Company and the Share Option Plan remains frozen. Any shares related to
the Share Option Plan carry rights with regards to control of the Company that are only exercisable directly
by the employee.
Treasury shares of the Company
The consideration paid, including any directly attributable incremental costs (net of income taxes), for
shares of the Company held by entities controlled by the Group is deducted from equity attributable to the
owners of the Company as treasury shares, until these shares are cancelled or reissued. No gain or loss is
recognised in the consolidated income statement on the purchase, sale, issue or cancellation of such shares.
The life insurance subsidiary of the Group, as at 31 December 2021, held a total of 142 thousand ordinary
shares of the Company of a nominal value of €0.10 each (2020: 142 thousand ordinary shares of the
Company of a nominal value of €0.10 each), as part of its financial assets which are invested for the benefit
of insurance policyholders (Note 24 to the Consolidated Financial Statements). The cost of acquisition of
these shares was €21,463 thousand (2020: €21,463 thousand).
35
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Change of control
There are no significant agreements to which the Company is a party and which take effect following a
change of control of the Company, but the Company is party to a number of agreements that may allow the
counterparties to alter or terminate the agreements following a change of control. These agreements are
not deemed to be significant in terms of their potential effect on the Group as a whole.
The Group also has agreements which provide for termination if, upon a change of control of the Company,
the Company’s creditworthiness is materially worsened.
Other information
During 2021 and 2020 there were no restrictions on the transfer of the Company’s ordinary shares or
securities and no restrictions on voting rights other than the provisions of the Banking Law of Cyprus which
requires regulatory approval prior to acquiring shares of the Company in excess of certain thresholds, and
the generally applicable provisions including of the Market Abuse Regulation and applicable takeover
legislation. From time to time, specific shareholders may have their rights in shares restricted in accordance
with sanctions, anti-corruption, anti-money laundering and/or anti-terrorism compliance, including sanctions
relating to events in Ukraine as applicable. The Group’s policy is to comply with all applicable laws, including
sanctions and other restrictive measures that apply at all times, and the Group may from time to time
request individual shareholders to refrain from exercising certain rights to facilitate compliance with such
measures or related compliance issues.
Shares of the Company held by the life insurance subsidiary of the Group as part of its financial assets
which are invested for the benefit of insurance policyholders carry no voting rights, pursuant to the
insurance law. The Company does not have any shares in issue which carry special control rights.
There are no agreements between shareholders, known to the Company, which may result in restrictions on
the transfer of securities or voting rights.
Rights and obligations of ordinary shares
In accordance with the Company’s Constitution, the rights and restrictions attaching to the ordinary shares
are as follows:
subject to the right of the Company to set the record dates for the purposes of determining the
identity of members entitled to notice of and/or to vote at a general meeting, the right to attend
and speak at any general meeting of the Company and to exercise one vote per ordinary share at
any general meeting of the Company;
the right to participate pro rata in all dividends declared by the Company; and
the right, in the event of the Company’s winding up, to participate pro rata in the distribution of the
total assets of the Company.
36
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Major holders of shares and financial instruments
As at 31 December 2021 and 15 March 2022, the Company has been advised of the following notifiable
interests in the share capital of the Company:
31 December 2021
Number of
ordinary shares
or Depositary
Interests
representing
Company
ordinary shares
% held
Financial instruments
with similar
economic effect
(Regulation 17(1)(b)
of the Transparency
(Directive
2004/109/EC)
Regulations 2007 of
Ireland as amended)
% held
Lamesa Investments Ltd 41,383,699 9.27 - -
CarVal Investors 38,789,810 8.69 - -
Caius Capital LLP 9,595,550 2.15 25,941,471 5.81
Senvest Management LLC 25,137,132 5.63 - -
European Bank for Reconstruction and Development (EBRD) 22,401,744 5.02 - -
Cyprus Popular Bank Public Co Ltd 21,467,719 4.81 - -
Eaton Vance Management 16,463,879 3.69 - -
15 March 2022
Number of
ordinary shares
or Depositary
Interests
representing
Company
ordinary shares
% held
Financial instruments
with similar
economic effect
(Regulation 17(1)(b)
of the Transparency
(Directive
2004/109/EC)
Regulations 2007 of
Ireland as amended)
% held
Lamesa Investments Ltd 41,383,699 9.27 - -
CarVal Investors 39,055,322 8.75 - -
Caius Capital LLP 9,498,602 2.13 25,941,471 5.81
Senvest Management LLC 28,373,268 6.36 - -
European Bank for Reconstruction and Development (EBRD) 22,401,744 5.02 - -
Cyprus Popular Bank Public Co Ltd 21,467,719 4.81 - -
Eaton Vance Management 16,956,257 3.80 - -
Dividends
Based on the SREP decisions of prior years, the Company and BOC PCL were under a regulatory prohibition
for equity dividend distribution and therefore no dividends were declared or paid during years 2021 and
2020.
Following the 2021 SREP decision, the Company and BOC PCL remain under equity dividend distribution
prohibition. This prohibition does not apply if the distributions are made via the issuance of new ordinary
shares to the shareholders which are eligible as Common Equity Tier 1 capital.
No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company
and BOC PCL.
Principal risks and uncertainties - Risk management and mitigation
As part of its business activities, the Group faces a variety of risks. The Group monitors, manages and
mitigates these risks through various control mechanisms. Credit risk, liquidity and funding risk, market risk
(arising from adverse movements in exchange rates, interest rates and security prices and property prices)
and insurance and re-insurance risk, are of the key significant risks the Group faces. In addition, key risks
facing the Group also include operational risk which includes also compliance, legal and reputational risk,
regulatory risk, information security and cyber risk, digital transformation and technology risk as well as
business model and strategic risk.
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BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Principal risks and uncertainties - Risk management and mitigation (continued)
Information relating to the principal risks the Group faces and risk management is set out in Notes 45 to 48
of the Consolidated Financial Statements and in the 'Additional Risk and Capital Management Disclosures',
both of which form part of the Annual Financial Report for the year ended 31 December 2021 and in the
Pillar III Disclosures for the year ended 31 December 2021. In addition, in relation to legal risk arising from
litigations, investigations, claims and other matters, further information is disclosed in Note 39 of the
Consolidated Financial Statements.
Additionally, the Group is exposed to the risk on changes in the value of property which is held either for
own use or as stock of property or as investment property. Stock of property is predominately acquired in
exchange for debt and is intended to be disposed of in line with the Group’s strategy. Further information is
disclosed in Note 27 to the Consolidated Financial Statements.
The Group activities are mainly in Cyprus therefore the Group's performance is impacted by changes in the
Cyprus operating environment, as described in the 'Operating environment' section of this Directors' Report
and changes in the macroeconomic conditions and geopolitical developments as described in the 'Additional
Risk and Capital Management Disclosures' which form part of the Annual Financial Report for the year ended
31 December 2021.
In addition, details of the significant and other judgements, estimates and assumptions which may have a
material impact on the Group’s financial performance and position are set out in Note 5 to the Consolidated
Financial Statements.
Details of the financial instruments and hedging activities of the Group are set out in Note 21 of the
Consolidated Financial Statements.
The pandemic and its longer term impacts on the economy and the Group’s financial performance remain
uncertain. The effects of COVID-19 are described in the 'Business Overview' section of this Directors'
Report. Implications from the Russian and Ukraine military conflict also remain uncertain and difficult to
predict. The Group's direct exposure is limited however any indirect impact will depend on the duration and
severity of the crisis and its impact on the Cypriot economy, which remains uncertain at this stage. Further
disclosures are provided in 'Business Overview' section and 'Operating Environment' section and ‘Events
after the reporting date’ section of this Directors' Report.
The risk factors discussed above and in the reports identified above should not be regarded as a complete
and comprehensive statement of all potential risks and uncertainties. There may be risks and uncertainties
of which the Group is not aware or which the Group does not consider significant, but which may become
significant. As a result of the challenging conditions due to COVID-19, the uncertainty created by the
Ukrainian crisis, the growing threat of cyber-attack and unknown risks, the precise nature of all risks and
uncertainties that the Group faces cannot be predicted as many of these risks are outside of the Group’s
control.
Events after the reporting date
Ukrainian crisis
Russia’s invasion of Ukraine on 24 February 2022 has triggered disruptions and uncertainties in the markets
and the global economy, as well as coordinated implementation of sanctions the EU, UK and the U.S., in a
coordinated effort joined by several other countries, imposed against Russia, Belarus and certain regions of
Ukraine and certain Russian entities and nationals. The Group’s policy is to comply with all applicable laws,
including sanctions and export controls. At present, numerous complex regimes are developing rapidly in
response to the military conflict and the Group is working carefully and assiduously to comply with all
relevant requirements and to address their potential consequences.
The Group’s direct gross lending risk exposure (including loans and advances to customers classified as held
for sale) to Russia, Ukraine and Belarus was approximately €119 million (net book value of such exposure
at €110 million) across its business divisions as at 31 December 2021, of which €95 million were classified
as performing (the basis of the exposure is expanded compared to the country risk exposure as included in
Note 45.2 of the Consolidated Financial Statements which is disclosed by reference to the country of
residency/country of registration, to also include exposures for loans and advances to customers with
passport of origin in these countries and/or business activities within these countries and/or where the UBO
has passport of origin or residency in these countries). Customer deposits related to Russian/Ukrainian
customers are disclosed in Note 31 of the Consolidated Financial Statements.
38
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Events after the reporting date (continued)
Further, the Group had Rubble denominated loans and advances to banks of approximately €1 million as at
31 December 2021, and amounting to approximately €9 million as at 21 March 2022. Group’s investments
at amortised cost included Euro denominated debt securities of a carrying amount of €21.7 million relating
to debt securities of a European Union country issuer with significant exposure in Russia and Ukraine, which
was reduced by €10 million in March 2022. With respect to derivatives, it is noted that the Group reduced
its exposure in Rubble denominated derivatives to nil in March 2022. There were no other investments
relating to issuers with significant exposure to Russia and/or Ukraine. The Group’s balance sheet as at 31
December 2021 also included net assets of approximately €10 million held in the Group’s Russian
subsidiary; forming part of the Group’s overseas legacy operations which are being run down.
Although the Group’s direct exposure to the region is limited, the invasion of Russia to Ukraine could result
in prolonged/elevated geopolitical instability, trade restrictions, disruptions to global supply chains,
increases in energy prices with flow-on global inflationary impacts, and a potential negative impact in the
domestic, regional and global economy. The potential impacts from the Russian invasion of Ukraine remain
uncertain, including but not limited to, on economic conditions, asset valuations, interest rate expectations
and exchange rates. In the event that a significant decrease in the number and volume of transactions
occur as a result of the crisis, this may adversely impact transactional net fee and commission income for
the Group, particularly in International Banking Services.
The Group will continue to closely monitor related effects on its financial position, including estimated direct
and indirect impacts on expected credit loss calculations and on fair value measurement of assets, liabilities
and off-balance sheet exposures as well as impact on operating profit.
Voluntary exit plan by JCC Payment Systems Ltd
In January 2022, the Group’s subsidiary company JCC Payment Systems Ltd proceeded with a voluntary
exit plan for its employees, with a cost amounting to €2,901 thousand. In total, 14 employees accepted the
voluntary exit plan and are expected to leave the Group by the end of the first half of 2022.
Subordinated Tier 2 Capital Note - January 2017
On 19 January 2022, BOC PCL proceeded with the redemption of the remaining outstanding amount of
Subordinated Tier 2 Capital Note - January 2017, of a total nominal value of €43 million, as disclosed in
Note 33.
Books and significant records
The measures that the Directors have taken to secure compliance with the requirements of sections 281 to
285 of the Companies Act 2014 of Ireland (Companies Act 2014), with regards to the keeping of accounting
records, include the provision of appropriate resources to maintain adequate accounting records throughout
the Company and the Group, including the appointment of personnel with appropriate qualifications,
experience and expertise.
The accounting records are maintained at the Company’s registered office at 10 Earlsfort Terrace, Dublin 2,
D02 T380, Ireland and at 51 Stasinou Street, 2002 Strovolos, Nicosia, Cyprus.
Research and development
In the ordinary course of business, the Group develops new products and services that enhance the
customer experience. Additional information is disclosed in the 'Business Overview' section of this Directors'
Report.
Relevant audit information
In the case of persons who are Directors at the time this report is approved in accordance with section 330
of the Companies Act 2014:
the Directors hereby individually and collectively acknowledge, that so far as each Director is
aware, there is no relevant audit information of which the Company’s statutory auditors are
unaware; and
that he/she has taken all the steps that he/she ought to have taken as a Director in order to make
himself/herself aware of any relevant audit information and to establish that the Company’s
statutory auditors are aware of that information.
39
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Preparation of periodic reporting
The Board is responsible for ensuring that the management maintains an appropriate system of internal
controls which provides assurance of effective operations, internal financial controls and compliance with
rules and regulations. It has the overall responsibility for the Group and approves and oversees the
implementation of the Group’s strategic objectives, risk strategy and internal governance.
The Group has appropriate internal control mechanisms, including sound administrative and accounting
procedures, Information Technology (IT) systems and controls. The governance framework is subject to
review at least once a year.
Policies and procedures have been designed in accordance with the nature, scale and complexity of the
Group’s operations in order to provide reasonable but not absolute assurance against material
misstatements, errors, losses, fraud or breaches of laws and regulations.
The Board, through the Audit Committee and the Risk Committee, conducts reviews on a frequent basis,
regarding the effectiveness of the Group’s internal controls and information systems, as well as in relation
to the procedures used to ensure the accuracy, completeness and validity of the information provided to
investors. The reviews cover all systems of internal controls, including financial, operational and compliance
controls, as well as risk management systems. The role of the Audit Committee is inter alia to ensure the
financial integrity and accuracy of the Company’s financial reporting.
The Group’s financial reporting process is controlled using documented accounting policies and procedures
supported by instructions and guidance on reporting requirements, issued to all reporting entities within the
Group in advance of each reporting period. The submission of financial information from each reporting
entity is subject to sign off by the responsible financial officer.
Further analytical review procedures are performed at Group level. The internal control system also ensures
that the integrity of the accounting and financial reporting systems, including financial and operational
controls and compliance with legal and regulatory requirements and relevant standards, is adequate.
Where from time to time areas of improvement are identified these become the focus of management’s
attention in order to resolve them and thus strengthen the procedures that are in place. Areas of
improvement may include the formalisation of existing controls and the introduction of new information
technology controls, as dependency on information technology is ever increasing.
The Annual Financial Report in advance of its submission to the Board is reviewed and approved by the
Executive Committee. The Board, through the Audit Committee scrutinises and approves the financial
statements, results announcements and the Annual Report and ensures that appropriate disclosures have
been made. This governance process ensures that both management and the Board are given sufficient
opportunity to challenge the Group’s financial statements and other significant disclosures before their
publication.
Corporate Governance Statement
In January 2019 the CSE issued the 5th Edition (Updated) of the Corporate Governance Code (the CSE
Code). Listed companies have an obligation to include in their Annual Financial Report, a Report by the
Board of Directors on Corporate Governance. In the first part of the Report, companies should report
whether they comply with the CSE Code and the extent to which they implement its principles. In the
second part of the Report, companies should confirm that they have complied with the CSE Code provisions
and in the event that they have not, they should give adequate explanation.
The Company has also chosen to comply with the UK Corporate Governance Code 2018 published by the
Financial Reporting Council in the UK (the UK Code) following the Listing on the London Stock Exchange.
The Directors further consider that the Company has complied with the provisions of the UK code, other
than as set out in the Introduction Part B of the Corporate Governance Report.
Regarding the first part of the Report, as a company listed on the CSE, the Company has adopted the CSE
Code and implements its principles.
Regarding the second part of the Report, the Company complies with the provisions of the CSE Code.
Throughout the Corporate Governance Report for 2021 a narrative statement is provided on how the
principles of the CSE Code have been applied.
The narrative also covers principles of the UK Code and how these have been applied throughout the year.
40
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Corporate Governance Statement (continued)
The rules governing the composition of the Board of Directors and the appointment and replacement of its
members are set out in Section 1 of the Corporate Governance Report for 2021. The powers of the Board of
Directors and committees of the Board with administrative, management and supervisory functions,
including any powers of the Directors in relation to the issuing or buying back by the Company of its shares,
are also set out in the Corporate Governance Report.
Any amendment or addition to the Articles of Association of the Company is only valid if approved by a
special resolution at a shareholders’ meeting.
A description of the operation of the shareholders' meeting, the key powers of the shareholders' meeting,
shareholders’ rights and the exercise of such right are contained in Section 7 of the Corporate Governance
Report for 2021.
Details of restrictions in voting rights and special control rights in relation to the shares of the Company are
set out in the section ‘Other information’ above. Other information required to be disclosed for the purposes
of the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006 is included on page
33-37.
In accordance with section 167 of the Companies Act 2014, the Directors confirm that a Board Audit
Committee is established. Details of the Board Audit Committee’s membership and activities are included in
the Corporate Governance Report for 2021.
The Corporate Governance Report for 2021 is included within this Annual Financial Report on pages 271 to
329 and contains the information required for the purposes of section 1373 of the Companies Act 2014.
The statements and information referred to in this Corporate Governance Statement are deemed to be
incorporated herein.
Directors’ Compliance Statement
As required by section 225 of the Companies Act 2014, the Directors acknowledge that they are responsible
for securing the Company’s compliance with its relevant obligations (as defined in section 225(1)). The
Directors further confirm that a compliance policy statement has been drawn up setting out the Company’s
policies and that appropriate arrangements and structures have been put in place that are, in the Directors’
opinion, designed to secure material compliance with the relevant obligations. A review of those
arrangements and structures has been conducted in the financial year to which this report relates.
Service agreements termination
The service contract of one of the Executive Directors in office as at 31 December 2021 includes a clause for
termination, by service of six months’ notice to that effect by either the Executive Director or BOC PCL,
without cause and BOC PCL also maintains the right to pay the Executive Director, six months’ salary in lieu
of notice for immediate termination. There is an initial locked-in period of three years i.e. until 31 August
2022, during which no such notice may be served either by BOC PCL or the Executive Director, unless there
is a change of control of BOC PCL as this is defined in the service agreement, whereupon the Executive
Director may serve the notice and is further entitled to compensation as this is determined in the service
contract. The terms of employment of the other Executive Director are mainly based on the provisions of
the collective agreement in place, which provides for notice or compensation by BOC PCL based on years of
service and for a four month prior written notice by the Executive Director, in the event of a voluntary
resignation.
Board of Directors
The members of the Board of Directors of the Company as at the date of this Directors' Report are listed on
page 1. All Directors were members of the Board throughout the year and up to the date of this Directors’
Report except as disclosed below.
On 26 February 2021 and on 29 November 2021 the ECB approved the appointment of Mr Nicos Sofianos
and Mr Constantine Iordanou as Members of the Board of Directors respectively. On 6 October 2021 the
ECB approved the appointment of Mrs Eliza Livadiotou as an Executive Member of the Board of Directors.
In accordance with the Articles of Association at each annual general meeting of the Company every
Director who has been in office at the completion of the most recent annual general meeting since they
were last appointed or reappointed, shall retire from office and offer themselves for re-election if they wish.
41
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Board of Directors (continued)
The remuneration of the Board of Directors is disclosed in Note 50 to the Consolidated Financial Statements.
Directors’ and Secretary’s interests
The interest in the share capital of the Company held by each member of the Board of Directors and the
Company Secretary, including interests of their close family members at 31 December 2021, is presented in
the table below:
Ordinary shares or
Depositary Interests
representing Company
ordinary shares of €0.10
each at 31 December 2021
Ordinary shares or
Depositary Interests
representing Company
ordinary shares of €0.10
each at 1 January 2021 or
at the date of appointment
Non-executive directors
Efstratios-Georgios Arapoglou
46,500 46,500
Maksim Goldman
7,192 7,192
Arne Berggren
25,000 25,000
Ioannis Zographakis
3,014 3,014
Paula Hadjisotiriou
7 7
Constantine Iordanou (appointed on
29/11/2021)
246,773 246,773
Maria Philippou 1 1
Executive directors
Panicos Nicolaou
5,027 5,027
Eliza Livadiotou (appointed on 06/10/2021)
35 35
Company Secretary
Katia Santis
5 6
333,554 333,555
Apart from the interests set out above, the Board of Directors and the Company Secretary had no other
interests in the shares of the Company or its subsidiaries at 31 December 2021.
Auditors
The Auditors were re-appointed as Auditors at the last Annual General Meeting held on 25 May 2021 in
accordance with section 383(2) of the Companies Act 2014.
Non-financial information statement
EU regulations on non-financial information, which were transposed into Irish law (Disclosure of Non-
Financial and Diversity Information by Certain Large Undertakings and Groups Regulations 2017 (as
amended), require reporting on specific topics such as the environment, social and employee matters,
respect for human rights, bribery and corruption.
Reportable information includes policies, due diligence in implementing these policies and the outcomes of
these actions, the principal risks and management of these risks and key performance indicators (KPIs). The
Group follows a 'Regulation plus' policy, aiming to perform consistently above the minimum requirements of
the said Regulations.
The Group plays a key role in driving economic growth of Cyprus with a long presence and a dominant
market position. Sustainable development, social progress, and a viable economy are all among the Group’s
key goals for 2021 and beyond.
The Group publishes its Annual Non-Financial Results based on the Global Reporting Initiative (GRI) and the
Sustainability Accounting Standards Board (SASB) guidelines and standards, which identify and include all
the above information. The Corporate Sustainability Report 2021 will be available at the Group's website
http://www.bankofcyprus.com (Group/Sustainability/Our Sustainability Reports).
42
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Non-financial information statement (continued)
Commitment to Sustainability
The Group’s strategic approach to Sustainability is that its role continues to extend 'Beyond Banking'. This
approach is based on the foundations of Sound Governance and Ethics, focusing on four key pillars:
Responsible Services,
People,
Society and
Environment,
as detailed in the Corporate Sustainability Report. The Group takes into consideration local, global and
sectoral Sustainability Standards, frameworks, legislation and initiatives, including the 17 Sustainable
Development Goals and ESG (Environmental, Social, Governance) criteria. The Group acts with
transparency and accountability, in line with its code of ethics, and aspires to lead in an era characterized
by exponential change, disruption and digitalization through its innovative approach. The Group remains
consistent and committed towards all its stakeholders; investors, customers, shareholders, employees and
Cypriot society at large.
In 2021, the first ESG strategy of the Group was formulated. Through the ESG Strategy, the Group
efficiently communicates its new vision to its employees, external partners, clients, shareholders and the
society.
Employees
The Group recognises the significance of investing in employee empowerment and development.
Employee Engagement
As of 31 December 2021, the Group employed 3,438 employees (including 49 persons that have accepted
the voluntary exit plan (VEP) and left the Group in early 2022). Analysis per geographical location of the
Group’s average number of employees (full time) and analysis of the average number of employees in
Cyprus per business line for 2021 is disclosed in Note 14 of the Consolidated Financial Statements. BOC PCL
has developed policies to safeguard gender equality, diversity and inclusion. Policies, procedures, training
and a series of tools are available to ensure the Group fosters a culture of meritocracy and fairness.
Following the agreement with the Cyprus Union of Bank Employees for the renewal of the collective
agreement a performance based pay structure is introduced across the Group to drive greater alignment
with Group’s strategy and ambition.
The Group’s commitment in safeguarding gender equality in the workplace has been translated into policies
and practices over the years. In 2021, the Group has been certified by the Ministry of Labour, Welfare and
Social Insurance for the application of good practices for gender equality in the working environment.
A Staff Opinion Survey runs on an annual basis and aims at assessing the levels of commitment and
dedication of employees as well as identifying areas to focus on and areas for future improvement.
Learning and Development
Under the Group's Learning and Development Policy, in 2021 the training programmes delivered were based
on the following training pillars:
Systems,
Professional Effectiveness (Regulatory, Compliance, Credit related), and
Personal Development (Management Skills, Customer Service).
Due to the pandemic restrictions, the shift to digital learning (e-learnings and live-online courses), that
started in 2020, continued and expanded throughout 2021. In 2021, 100% of employees received training,
with a total of 50,012 training hours.
Health and Safety
The Group approaches Health and Safety of its employees as a primary concern. In 2021, in addition to all
COVID-19 precautions and measurements, the Group organised and offered free weekly rapid tests for its
employees at owned locations. Overall, the Group spent more than €40 thousand on COVID-19 tests for its
employees. The Group spent more than €114 thousand on disinfections, personal protective equipment,
thermometers, plexiglass barriers, protective shields and floor signage, in order to protect its employees,
customers and associates and to prevent the spread of the virus at its premises. In 2021, BOC PCL
continued to place special emphasis on staff wellness offering seminars on Healthy Eating, Mental Health in
the workplace and Financial Planning to 630 employees, through its ‘Well at Work program’.
43
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Non-financial information statement (continued)
The Group’s employees maintain a long history of volunteerism in the community and they are encouraged
to actively participate and engage with the Group’s various actions and initiatives. During 2021, due to the
pandemic, no major charity events were organised by the Group and therefore the engagement of staff
volunteers was limited to smaller volunteering actions.
Society
The Group’s Donations, Sponsorships and Partnerships policy covers the Group’s engagement with key
partners, customers and other stakeholders which aim to create sustainable social impact and material
difference to the community. Based on the Group’s CSR Strategy, all initiatives are compatible with its core
business and key enhancers of the Group’s overall strategy and vision. The Strategy clearly indicates the
move from issuing a cheque and requesting logo placement, to examining, contributing, engaging and
finally, committing to the cause of support. Further, in alignment with the Group's ESG Strategy, the
initiatives support the selected United Nations Sustainability Development Goals (SDGs) underpinning the
Group's ESG strategy.
The Group’s Social Programme responds when:
A compelling societal need exists.
The said need is not fully served by the public sector.
The proposed actions/strategies best serve all BOC PCL stakeholders (investors, customers,
employees, shareholders, regulators etc.).
During 2021, the Group successfully continued and expanded the operation of the award winning SupportCY
network of companies and Non-Governmental Organisations (NGOs). Although SupportCY was created in
March 2020, in order to support Public Services performing frontline duties during the Pandemic, its actions
led by BOC PCL expanded in supporting various societal needs. At the same time, it continued to generate
Social Capital which is both sustainable and more effective, by bringing businesses and organisations
together to share what each does best, in responding to specific needs. By 31 December 2021, the
SupportCY network had more than 130 members, while the SupportCY Crises and Disasters Respond
Center, the SupportCY Volunteers Corps and SupportCY House, were created in order to satisfy and cover
even more needs of the Cyprus society, and beyond. In 2021, the SupportCY initiative contributed in funds,
services and products worth more than €780 thousand to the society, with BOC PCL contributing most of
the monetary support.
Furthermore, in 2021 the Group continued to undertake sustainable support actions and showed particular
concern for vulnerable social groups. Accordingly, it enhanced support related to health, education and
social welfare, based on its relevant policy and strategy. Additionally, the Group developed initiatives that
aimed to preserve local culture and history and to enhance innovation.
To support these actions, BOC PCL contributed approximately €458 thousand for the support and
enhancement of more than 85 NGOs, associations, charity organizations, municipalities, schools, sports
federations, and sports academies, while offering refurbished computers and other office equipment to
schools, associations and NGOs from BOC PCL’s stock.
The main sustainable support actions within the two pillars of Health and Education, are indicated below.
Health pillar main actions:
More than 45,000 patients have been treated at the Bank of Cyprus Oncology Centre since its
establishment by BOC PCL and the Cyprus Government in 1998, while the Group continued
offering extensive support, financial and otherwise, towards the Centre. The cumulative
contribution of the Group to the Bank of Cyprus Oncology Centre is approximately €70 million.
The Group coordinated for one more year the 'Fight against Cancer' campaign with the Cyprus
Anticancer Society, customized to meet pandemic related social distancing and other rules. The
campaign resulted in fund raising of €328 thousand, recording an increase of around 14.7%
relating to the past year.
In 2021, the Group repeated its provision of financial and other medical support to families in
need through key NGOs, based on the Donations, Sponsorships and Partnerships Policy, and
within the SupportCY network. Additionally, the Group partners work with, and support several
Patient Associations.
44
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Non-financial information statement (continued)
Education pillar main actions:
The Bank of Cyprus Cultural Foundation is a non-profit organization established in 1984,
protecting cultural heritage and supporting youth, curating two museums and five rare
collections. It has more than 250 Cyprological editions, has organised and participated in more
than 60 exhibitions in Cyprus and abroad, 100 conferences and more than 10,000 children have
participated in its educational programmes since establishment. Five research programmes are
running and €3.5 million funding secured by EU.
The European Commission award-winning IDEA Innovation Center has supported 74 new start-
ups and created more than 90 job positions from the 620 applications it has received to its
Programme, with 40 of these businesses still being active, since its establishment in 2016. Today
it is the leading organisation in Cyprus within its sector. In 2021, BOC PCL continued its support
in respect of 12 start-ups that were admitted to the IDEA Incubator-Accelerator Programme, 13
entrepreneurs who successfully completed the Programme and 5 new companies were created.
€60 thousand in financial support was offered, as well as €576 thousand in pro-bono services
through its vast network of partners and collaborators.
In 2021, IDEA has also achieved two significant recognitions in Cyprus; one of its start-ups has
been accepted to Y Combinator and has already secured significant investment from a US fund,
while another raised €600 thousand through a crowdfunding platform, the greatest success to-
date for a Cypriot start-up. At the same time, several other of its start-ups have attracted
investment capital and business partnerships from Cyprus and abroad, established their own
offices and employed their own staff.
In 2021, the Group repeated the partnerships with various organizations in a bid to help boost
education, innovation and ingenuity. Additionally, the Group awards excellence, creativity and
civic mindedness among pupils, but also recognises those pupils who stand out in international
and local competitions, through awards and prizes. These are offered through the partnerships
with teachers and other professional associations. The Group also awarded talented youth in
sports, through sport associations and academies.
Road Safety is one more sub-pillar in Education that the Group is actively involved, through the
organization and support of campaigns such as friendly tire and mechanical inspections on
vehicles, and programmes in schools on road safety education, in partnership with expert NGOs,
the Police and the Ministry of Transportation.
Political donations
Political donations are required to be disclosed under the Electoral Act 1997 of Ireland (as amended). Based
on the Donations, Sponsorships and Partnerships Policy of the Group, the Group does not sponsor political
parties, or any associations/organizations related directly, or indirectly, to one. The Directors, on enquiry,
have satisfied themselves that there were no political donations made during the year ended 31 December
2021.
Environment
As the leading financial services provider in Cyprus, the Group plays a very important role in addressing the
climate crisis. Beyond the initiatives focusing on introducing financing of sustainable products and services
and designing and embedding environmental procedures in the lending processes, BOC PCL monitors closely
internal resource utilization, in order to address issues on materials’ use and energy consumption wherever
possible and therefore reduce waste and CO2 emissions. The Group is committed to leading by example by
minimising its environmental footprint and to promote green economy. In particular, BOC PCL is in the
process of calculating its environmental footprint including material Scope 3 non-financed emissions, so as
to establish an actionable roadmap for its carbon reduction targets and KPIs, to enable it to achieve its
decarbonisation goals.
BOC PCL has committed to the following primary ESG targets, which reflect the pivotal role of ESG in BOC
PCL’s strategy. Specifically, the Group committed to the following strategic environmental targets:
Become carbon neutral by 2030
Become Net Zero by 2050
Steadily increase Green Asset Ratio
Steadily increase Green Mortgage Ratio
An ESG roadmap has been established to seize new opportunities, reduce risk and comply with regulatory
requirements and market expectations.
Further information on actions undertaken and planned by the Group as to deliver on its ambition are
disclosed within ‘Strategic priorities for the medium-term’ within Section ‘Business Overview’ of this
Directors’ Report.
45
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Non-financial information statement (continued)
The Group focuses its attention on training its Board, Management and employees to manage the Group’s
impact on the environment focusing on topics that are material for managing BOC PCL’s footprint and
supporting its customers in managing the transition to a green economy. A number of training courses were
organised to increase knowledge and awareness about environmental topics.
The Group is conscious of the effect that climate change has on the Group and view it as manifesting itself
in two ways, firstly, through the operations of its business and secondly the financial risk it brings to the
economy in the longer term. BOC PCL is committed to applying certain environmental and social policies
and procedures to its lending and insurance activities based on specific criteria. To this end the Group has
an Environmental and Social Policy in place which enables it to identify and manage potential negative
impacts to the environment and to social issues, as well as the associated risks affecting both the customers
and the Group. In 2021, the Group has developed a Climate-related and environmental Risks (C&E)
Implementation Plan, and updated this in early 2022, covering each of the priorities of ECB’s guidance on
how banks should manage C&E risks, including actions to address gaps highlighted in the self-assessment,
across a multi-year timeline. This plan was developed following engagement with key stakeholders from
across the Group. A number of actions have been lined up for implementation in 2022 as part of the Group’s
implementation plan. Climate Change presents both risks and opportunities to meet new customer needs
for the Group and we are preparing for both with a dedicated programme of work in place for 2022.
The Group actively promotes environmental sustainability through the ongoing identification, management
and improved efficiency of those significant environmental impacts associated with the Group's business
activities, including: energy management; carbon impact and the transition to a low carbon economy; use
of natural resources (paper, water and oil); and, recycling and waste management.
Human Rights and Equal Opportunities
The Group’s Code of Ethics sets out clearly the ethical moral principles and values upheld by the Group and
provides a framework for expected behaviour and guides the Group's workforce in doing the right thing. The
Group acknowledges its responsibility to respect human rights as set out in the International Bill of Human
Rights and follows internationally acclaimed directives, principles and initiatives to protect human rights,
such as the Core Labour Conventions of the International Labour Organization (ILO) and the Universal
Declaration of Human Rights (UDHR).
The Group has policies to ensure gender equality, diversity and inclusion and operates based on objective
criteria related to ability, ethics and experience, regardless of colour, race, national/ethnic origin, disability,
age, gender, religion, sexual orientation or political opinion. Policies and procedures, as well as training and
a range of tools are available to ensure that the Group promotes a culture of equity. The zero-tolerance
policy on discrimination, harassment and bullying is designed to effectively manage and ultimately eliminate
any form of harassment, discrimination or unfair treatment.
In order to mitigate against human rights risk, or violations that may occur, BOC PCL has comprehensive
due diligence procedures in place, which include: the implementation of the Code of Conduct which defines
specific behaviours, practices, responsibilities and rules for staff of the Group to follow and uphold as staff
members of the Bank of Cyprus Group and a suite of reporting mechanisms to support the timely reporting
of issues.
Combating bribery and issues related to corruption
The Group’s fundamental values and principles governing its business activities emphasize the importance
of ensuring ethical conduct at all times. Protecting the integrity of the financial system from financial crime
risks including money laundering, terrorist financing and bribery and corruption is of intrinsic importance to
the Group.
The Group abides by a zero-tolerance policy on money laundering, tax evasion, funding of terrorist activity,
bribery, corruption fraud and market abuse. A strong anti-bribery policy, a gift registry, a conflict-of-interest
registry and frequent reminders contribute to achieving high-level compliance. Protecting money, privacy
and data of the Group’s customers is the key to its Anti-Bribery and Corruption Policy. Key Codes and
policies in managing such matters are the Group’s Code of Ethics, the Group’s Code of Conduct, the Group’s
Anti-Bribery and Corruption Policy, the Conflicts of Interest Group Policy, the Group Whistleblowing Policy
and the Group Policy Relating to the Prevention of Money Laundering and Terrorism Financing.
Training programs on anti-money laundering and anti-corruption policies and procedures are carried out by
the employees on an annual basis.
46
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Non-financial information statement (continued)
The Group maintains an Anti-Financial Crime Framework. An enhanced risk-based approach with regard to
the risk scoring of the customers is followed and this is reflected in BOC PCL’s Customer Acceptance Policy.
Customers are risk-scored for AML purposes, according to a set of parameters that take into account
geographical factors, products purchased, distribution channels, transactional behaviour and other risk
indicating factors. Customers go through the Group's due diligence process at the on-boarding stage and on
an ongoing basis, which is driven by the risk assessment of the customer. Some customers and beneficial
owners present higher risk (e.g. politically exposed persons (PEPs) and/or customers established/residing in
a 'high-risk' third country). For these customers enhanced due diligence is applied. Further the Group
commits itself to safeguarding the personal data of its customers, suppliers and partners. Customers retain
control of their personal data and exercise their rights as per the EU GDPR with regard to the way their
personal data is collected, processed and secured. The Group applies Data Protection Impact Assessment
(DPIAs), to promptly identify and mitigate any privacy risks.
All employees and Directors are made aware of the Regulatory Compliance Policies and standards.
Diversity Report
The Group's diversity report is contained in the ‘Diversity’ section of the Corporate Governance Report.
Business Model
The business model of the Group is described in the ‘Business Overview’ and 'Strategy and Outlook' sections
of this Directors' Report.
Risk Management
A description of the principal risks, their impact on business activity, and the way they are managed is
disclosed in Section 'Principal risks and uncertainties - Risk management and mitigation' of this Directors'
Report.
The Group is continuing with its Digital Transformation Programme as described in section ‘Digital
Transformation’ of this Directors' Report which focuses on three strategic pillars: developing digital services
and products that enhance the customer experience, streamlining internal processes, and introducing new
ways of working to improve the workplace environment.
The risks related to the Group’s corporate responsibility actions and the actions undertaken by the Group in
order to address them are covered within each pillar of responsibility.
Key Performance Indicators
An analysis of KPIs relevant to the Group is disclosed in the ‘Financial Results’ section of this Directors'
Report.
EU Taxonomy - Disclosures in accordance with Article 8 of the Taxonomy Regulation
Sustainability forms a key pillar of the Group’s strategy. To support this goal, the Group is working to
develop a Green Lending Framework where it expects to use the EU Taxonomy as one of the considerations
to inform criteria for green or transition loans. This framework is expected to be reviewed annually and to
evolve as the EU Taxonomy expands.
BOC PCL has approved a high-level Green Lending Policy based on the Green Loan Principles (‘GLPs’), and
its purpose is to provide the framework for the procedures and the requirements that BOC PCL will
implement for the creation of ‘green’ loan products and ultimately the development of a green loan
portfolio. The Green Lending Policy provides instructions regarding the information that BOC PCL should
require from borrowers so to ascertain whether an application for a green loan product can be considered
for approval and adopts an indicative list of eligible categories for green project financing.
BOC PCL, under its existing Environmental and Social Policy prohibits finance to certain sectors which are
included in its ‘Exclusion and Referral Sectors’ list with negative environmental impact.
47
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Non-financial information statement (continued)
EU Taxonomy - Disclosures in accordance with Article 8 of the Taxonomy Regulation (continued)
BOC PCL offers a range of environmentally friendly products that help its customers become more
sustainable. For example, a number of loan products are offered under the Fil-eco Product Scheme. BOC
PCL offers Environmentally friendly Car Hire Purchase, addressed to anyone who wants to buy a new hybrid
or electric car, providing its customers the opportunity to buy a new electric vehicle and to move away from
transport options reliant on fossil fuels. Moreover, an environmentally friendly loan for home renovation is
offered to customers who want to renovate and upgrade the energy efficiency of their privately owned
primary residence or holiday home and achieve a higher energy efficiency rating. Further, the customers
may benefit from an Energy Loan for the installation of energy saving systems for home use. This product is
addressed to customers who seek financing for the installation of photovoltaic systems for home use and
other home energy-saving systems.
Looking forward, in 2022 the Group will continue to build out its green product offering further. The Group
expects to discuss ESG matters with its clients at the point of loan origination. Additionally the Group
expects to start the collection of data from its customers to enable loan classification as green or transition.
Contextual information including the scope of assets and activities covered by the KPIs,
information on data sources and limitations
In accordance with Article 8 of the Taxonomy Regulation and the related Climate Disclosures Delegated Act,
starting from year-end 2021, financial undertakings have to disclose the proportion of exposures to
Taxonomy-eligible and Taxonomy non-eligible economic activities in their total assets as well as a number
of key performance indicators related to the proportion of selected exposures in their total assets. The
primary indicator of alignment is the green asset ratio (GAR), which companies must publish from 2024.
Eligibility-related disclosures of financial undertakings with regard to financial or non-financial undertakings
in scope of Article 8 of the Taxonomy Regulation shall be based on actual information provided by them.
Given that this information is due to be disclosed in course of 2022 for the first time, the assessment of
Taxonomy eligible economic activities of corporate undertakings based on the Climate Disclosures
Delegated Act is currently not fully possible.
Accordingly, the Group is reporting only household related exposures as Taxonomy eligible exposures for
the year-end 2021. In the denominator, the Group includes local government financing, financial
corporations (FCs), non-financial corporations (NFCs), derivatives, on demand interbank loans, cash and
cash-related assets and other assets. The scope of activities covered includes the eligible activities under
climate change mitigation (CCM)
1
and climate change adaptation (CCA)
2
. Total exposure for other assets
not covered in either denominator or numerator has been provided for central governments, central banks
and supranational issuers, and the trading portfolio.
The following table outlines the breakdown of Taxonomy-eligible assets on the balance sheet with reference
to disclosure requirements for 2021. The Group will continue to develop its disclosures over the coming
years as requirements and data availability increase. This table is prepared on the prudential scope of
consolidation per FINREP. The below metrics are unaudited and have been prepared in line with available
guidance to the best of the Group’s ability.
1
CCM: The process of holding the increase in the global average temperature to well below 2 C and pursuing
efforts to limit it to 1.5 C above pre-industrial levels, as laid down in the Paris Agreement.
2
CCA: The process of adjustment to actual and expected climate change and its impacts.
48
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Non-financial information statement (continued)
EU Taxonomy - Disclosures in accordance with Article 8 of the Taxonomy Regulation (continued)
31 December 2021 €000
% of total
assets
Assets covered in both numerator and denominator
Households
3,752 16%
Taxonomy eligible economic activities
3,752 16%
Assets excluded from the numerator (covered only in the
denominator)
Exposures & investments to NFCs not subject to NFRD 4,904 20%
Exposures & investments to FCs not subject to NFRD 261 1%
On-demand inter-bank loans 177 1%
Derivatives-non trading book 2 0%
Properties (stock of properties and investment properties) 1,165 5%
Exposures & investments to FCs subject to NFRD 676 3%
Exposures & investments to NFCs subject to NFRD 180 1%
Exposures to retail sector not included in the numerator 850 3%
Other assets (assets held for sale/own-use property etc.) 1,620 7%
Taxonomy non-eligible activities
9,835 41%
Total covered assets
13,587 57%
Other assets not covered in either denominator or numerator
Exposures to Central Governments 1,089 4%
Exposures to Central Banks 9,088 38%
Supranational Exposures 209 1%
Trading book exposures 5 0%
Total assets not covered in either denominator or numerator
10,391 43%
Total assets 23,978 100%
Taxonomy eligible economic activities as a percentage of total assets amount to 16%, whereas non-eligible
economic activities amount to 41% of total assets.
Total derivative exposures as a % of total assets amount to less than 1%.
49
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Annual Financial Report 2021
Directors' Report
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Financial Report and the financial statements in
accordance with International Financial Reporting Standards (IFRS) adopted by the EU and with those parts
of the Companies Act 2014 applicable to companies reporting under IFRSs, the EU (Credit Institutions:
Financial Statements) Regulations 2015 and, in respect of the consolidated financial statements, Article 4 of
the International Accounting Standards (IAS) Regulation. Company law requires the Directors to prepare
Group and Company financial statements for each financial year.
Under Irish law the Directors shall not approve the financial statements unless they are satisfied that they
give a true and fair view of the Group’s and Company’s assets, liabilities and financial position as at the end
of the financial year and of the profit or loss of the Group and the Company for the financial year and
otherwise comply with the Companies Act 2014.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether the financial statements have been prepared in accordance with IFRSs adopted by
the EU and ensure that they contain the additional information required by the Companies Act
2014; and
prepare the financial statements on a going concern basis unless it is inappropriate to presume
that the Group and the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Company’s transactions, to disclose with reasonable accuracy at any time the assets, liabilities
and financial position of the Company and enable them to ensure that the financial statements comply with
the provisions of the Companies Act 2014 and Article 4 of IAS Regulation. The Directors, through the use of
appropriate procedures and systems, have also ensured that measures are in place to secure compliance
with the Company’s and the Group’s obligations to keep adequate accounting records. These accounting
records are kept at the Company’s registered office at 10 Earlsfort Terrace, Dublin 2, D02 T380, Ireland and
at 51 Stassinos Street, 2002, Strovolos, Nicosia, Cyprus.
In compliance with section 283 of the Companies Act 2014, the information and returns relating to the
business dealt with in the accounting records for 2021 has been sent to the registered office of the
Company. The Directors are also responsible for safeguarding the assets of the Group and the Company and
hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and the requirements of the Listing Rules issued by the London Stock Exchange, the
Directors are also responsible for preparing a Directors' Report and reports relating to Directors'
remuneration and corporate governance. The Directors are also required by the Transparency (Directive
2004/109/EC) Regulations 2007, as amended Part 2 (Transparency Requirements) of the Central Bank
(Investment Market Conduct) Rules 2019 and the Disclosure Guidance and Transparency Rules of the UK's
Financial Conduct Authority to include a Directors' report containing a fair review of the development and
performance of the business and the position of the Group and a description of the principal risks and
uncertainties facing the Group.
50
Consolidated Financial Statements 2021
BANK OF CYPRUS HOLDINGS GROUP
Consolidated Financial Statements - Contents
for the year ended 31 December 2021
Contents
Page Page
Consolidated Income Statement 54
Consolidated Statement of Comprehensive Income
55
Consolidated Balance Sheet 56
Consolidated Statement of Changes in Equity
57
Consolidated Statement of Cash Flows 59
Notes to the Consolidated Financial Statements
1. Corporate information 60
2. Summary of significant accounting policies 60
2.1 Basis of preparation 60
2.2 Accounting policies and changes in accounting
policies and disclosures 60
2.3 Standards and Interpretations that are issued but
not yet effective 62
2.4 Basis of consolidation
65
2.5 Business combinations 66
2.6 Investments in associates and joint ventures 66
2.7 Foreign currency translation
67
2.8 Segment reporting
67
2.9 Turnover
67
2.10 Revenue from contracts with customers
67
2.11 Recognition of interest income/expense and
income/expense similar to interest 69
2.12 Retirement benefits 70
2.13 Tax 70
2.14 Financial instruments - initial recognition 71
2.15 Classification and measurement of financial assets
and financial liabilities 72
2.16 Reclassification of financial assets and liabilities
75
2.17 Derecognition of financial assets and financial
liabilities 76
2.18 Forborne and modified loans 76
2.19 Impairment of financial assets
77
2.20 Write-offs 83
2.21 Financial guarantees, letters of credit and undrawn
loan commitments 84
2.22 Offsetting financial instruments 84
2.23 Hedge accounting 84
2.24 Cash and cash equivalents
85
2.25 Insurance business 86
2.26 Repurchase and reverse repurchase agreements
87
2.27 Leases - The Group as lessee
87
2.28 Property and equipment 88
2.29 Investment properties 89
2.30 Stock of property 89
2.31 Non-current assets held for sale and discontinued
operations 89
2.32 Intangible assets 90
2.33 Share capital 90
2.34 Other equity instruments 91
2.35 Treasury shares 91
2.36 Provisions for pending litigation, claims, regulatory
and other matters 91
2.37 Comparative information 91
3. Going concern 91
4. Economic and geopolitical environment 92
5. Significant and other judgements, estimates and
assumptions 92
6. Segmental analysis 103
7. Interest income and income similar to interest income 109
8. Interest expense and expense similar to interest expense 110
9. Fee and commission income and expense 110
10. Net foreign exchange gains 110
11. Net (losses)/gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates 111
12. Insurance income net of claims and commissions 111
13. Other income 113
14. Staff costs 113
15. Other operating expenses 120
16. Credit losses of financial instruments and impairment of
non-financial assets 122
17. Income tax 122
18. Earnings per share 126
19. Cash, balances with central banks and loans and advances
to banks
127
20. Investments 128
21. Derivative financial instruments 132
22. Fair value measurement
137
23. Loans and advances to customers 148
24. Life insurance business assets attributable to
policyholders 148
25. Property and equipment 149
26. Intangible assets 151
27. Stock of property 152
28. Prepayments, accrued income and other assets 153
29. Non-current assets and disposal groups held for sale
155
30. Funding from central banks
157
31. Customer deposits 158
32. Insurance liabilities 159
33. Loan stock 160
34. Accruals, deferred income, other liabilities and other
provisions 161
35. Share capital 161
36. Dividends 163
37. Retained earnings 163
38. Fiduciary transactions 163
39. Pending litigation, claims, regulatory and other matters 163
40. Contingent liabilities and commitments 170
41. Net cash flow from operating activities 171
42. Cash and cash equivalents 172
43. Leases 173
44. Analysis of assets and liabilities by expected maturity
175
45. Risk management - Credit risk 176
46. Risk management - Market risk 211
47. Risk management - Liquidity and funding risk 219
48. Risk management - Insurance risk 226
49. Capital management 228
50. Related party transactions 230
51. Group companies
237
52. Investments in associates and joint venture 240
53. Country by country reporting 241
54. Events after the reporting period 242
53
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Consolidated Income Statement
for the year ended 31 December 2021
2021 2020
Notes €000 €000
Turnover
6
Interest income
7
Income similar to interest income
7
Interest expense 8 (67,057 ) (61,991 )
Expense similar to interest expense
8
(25,192 ) (44,720 )
Net interest income 296,300 329,998
Fee and commission income 9 180,212 151,091
Fee and commission expense 9 (8,416 ) (6,417 )
Net foreign exchange gains 10 16,503 16,535
Net (losses)/gains on financial instrument transactions and disposal/dissolution of
subsidiaries and associates
11
(22,047 ) 1,721
Insurance income net of claims and commissions 12 61,044 56,063
Net losses from revaluation and disposal of investment properties (1,828 ) (1,499 )
Net gains on disposal of stock of property
27
Other income
13
Staff costs 14 (218,633 ) (201,052 )
Special levy on deposits and other levies/contributions
15
(36,350 ) (33,656 )
Other operating expenses
15
(167,188 ) (188,560 )
Net gains on derecognition of financial assets measured at amortised cost 3,859 2,949
Credit losses to cover credit risk on loans and advances to customers 16 (40,341 ) (275,080 )
Credit losses of other financial instruments 16 (5,803 ) (4,585 )
Impairment net of reversals of non-financial assets
16
(49,456 ) (37,586 )
Profit/(loss) before share of profit from associates
Share of profit from associates
52
Profit/(loss) before tax
Income tax
17
(4,243 ) (7,920 )
Profit/(loss) after tax for the year
Attributable to:
Owners of the Company
Non-controlling interests
Profit/(loss) for the year
Basic and diluted profit/(loss) per share attributable to the owners of the
Company (€ cent)
18
54
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2021
2021 2020
Notes €000 €000
Profit/(loss) for the year
Other comprehensive income (OCI)
OCI that may be reclassified in the consolidated income statement in
subsequent periods
Fair value reserve (debt instruments)
Net losses on investments in debt instruments measured at fair value
through OCI (FVOCI)
(398 ) (6,984 )
Transfer to the consolidated income statement on disposal
(398 ) (10,637 )
Foreign currency translation reserve
(Loss)/profit on translation of net investments in foreign branches and
subsidiaries
(7,881 ) 24,551
Profit/(loss) on hedging of net investments in foreign branches and
subsidiaries
21
Transfer to the consolidated income statement on dissolution/disposal of
foreign branches and subsidiaries
(68 ) 84
(152 ) 879
Total OCI that may be reclassified in the consolidated income
statement in subsequent periods
(550 ) (9,758 )
OCI not to be reclassified in the consolidated income statement in
subsequent periods
Fair value reserve (equity instruments)
Net gains/(losses) on investments in equity instruments designated at FVOCI
Property revaluation reserve
Fair value gain before tax
25
Deferred tax
17
Actuarial gains/(losses) on defined benefit plans
Remeasurement gains/(losses) on defined benefit plans
14
Total OCI not to be reclassified in the consolidated income statement
in subsequent periods
Other comprehensive income/(loss) for the year net of taxation
Total comprehensive income/(loss) for the year
Attributable to:
Owners of the Company
Non-controlling interests
Total comprehensive income/(loss) for the year
55
56
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Consolidated Balance Sheet
as at 31 December 2021
2021
2020
Assets
Notes
€000
€000
Cash and balances with central banks
19
Loans and advances to banks
19
Derivative financial assets
21
Investments
20
Investments pledged as collateral
20
Loans and advances to customers
23
Life insurance business assets attributable to policyholders
24
Prepayments, accrued income and other assets
28
Stock of property
27
Deferred tax assets
17
Investment properties
22
Property and equipment
25
Intangible assets
26
Investments in associates and joint venture
52
Non-current assets and disposal groups held for sale
29
Total assets
Liabilities
Deposits by banks
Funding from central banks
30
Derivative financial liabilities
21
Customer deposits
31
Insurance liabilities
32
Accruals, deferred income, other liabilities and other provisions
34
Pending litigation, claims, regulatory and other matters
39
Loan stock
33
Deferred tax liabilities
17
Total liabilities
Equity
Share capital
35
Share premium
35
Revaluation and other reserves
Retained earnings
37
Equity attributable to the owners of the Company
Other equity instruments
35
Total equity excluding non-controlling interests
Non-controlling interests
Total equity
Total liabilities and equity
Mr. E.G. Arapoglou
Chairman
Mr. P. Nicolaou
Chief Executive Officer
Mr. N. Sofianos
Director
Mrs. E. Livadiotou
Executive Director Finance
& Legacy
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Consolidated Statement of Changes in Equity
for the year ended 31 December 2021
Attributable to the owners of the Company
Share
capital
(Note 35)
Share
premium
(Note 35)
Treasury
shares
(Note 35)
Retained
earnings
(Note 37)
Property
revaluation
reserve
Financial
instruments
fair value
reserve
Life insurance
in-force
business
reserve
Foreign
currency
translation
reserve
Total
Other equity
instruments
(Note 35)
Non-
controlling
interests
Total
equity
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2021
Profit for the year - - - 29,709 - - - - 29,709 - 2,168 31,877
Other comprehensive income/(loss) after tax for
the year
Total comprehensive income/(loss) after tax for
the year
Increase in value of in-force life insurance
business
Tax on increase in value of in-force life
insurance business
Payment of coupon to AT1 holders (Note 35) - - - (27,500 ) - - - - (27,500 ) - - (27,500 )
Dividends paid to non-controlling interests - - - - - - - - - - (2,110 ) (2,110 )
Impact on NCI due to disposal of subsidiary
(Note 51)
31 December 2021
57
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Consolidated Statement of Changes in Equity
for the year ended 31 December 2021
Attributable to the owners of the Company
Share
capital
(Note 35)
Share
premium
(Note 35)
Treasury
shares
(Note 35)
Retained
earnings
(Note 37)
Property
revaluation
reserve
Financial
instruments
fair value
reserve
Life insurance
in-force
business
reserve
Foreign
currency
translation
reserve
Total
Other
equity
instruments
(Note 35)
Non-
controlling
interests
Total
equity
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January 2020
Loss for the year - - - (171,532 ) - - - - (171,532 ) - (3,251 ) (174,783 )
Other comprehensive (loss)/income after tax for
the year
Total comprehensive (loss)/income after tax for
the year
Increase in value of in-force life insurance
business
Tax on increase in value of in-force life
insurance business
Transfer of realised profits on disposal of
properties
Reduction of share premium (Note 35) - (700,000 ) - 700,000 - - - - - - - -
Change in the holding of Undertakings for
Collective Investments in Transferable Securities
(UCITS) Fund
Payment of coupon to AT1 holders (Note 35) - - - (27,500 ) - - - - (27,500 ) - - (27,500 )
Dividends paid to non-controlling interests
31 December 2020
58
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Consolidated Statement of Cash Flows
for the year ended 31 December 2021
2021 2020
Notes €000 €000
Net cash flow from/(used in) operating activities
41
Cash flows from investing activities
Purchases of debt securities and equity securities
(619,379 ) (575,638 )
Proceeds on disposal/redemption of investments in debt and equity
securities
Interest received from debt securities
Dividend income from equity securities
Proceeds on disposal of subsidiaries and associates
Proceeds on disposal of held for sale portfolios
29 145,030 13,409
Deposits on held for sale portfolios
29 19,225 21,100
Purchases of property and equipment
25
(6,287 ) (10,121 )
Purchases of intangible assets
26 (16,055 ) (15,129 )
Proceeds on disposals of property and equipment and intangible
assets
Proceeds on disposals of investment properties and investment
properties held for sale
Net cash (used in)/from investing activities
(44,661 ) 85,676
Cash flow from financing activities
Payment of AT1 coupon
35
(27,500 ) (27,500 )
Net proceeds from funding from central banks 30 2,000,000 1,000,000
Proceeds from the issue of loan stock (net of costs)
Repayments of subordinated loan stock
(231,596 ) -
Principle elements of lease payments
43 (7,637 ) (8,626 )
Interest on subordinated loan stock (33,570 ) (23,329 )
Interest on balances with central banks 8 (31,919 ) (18,782 )
Dividend paid by subsidiaries to non-controlling interests
(2,110 ) (1,090 )
Net cash from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents
1 January 5,890,135 5,130,863
Foreign exchange adjustments (22,493 ) 26,426
Net increase in cash and cash equivalents
31 December 42
Details on the non-cash transactions are presented in Note 41.
59
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
1. Corporate information
2016, as a public limited company under company number 585903 in accordance with the provisions of the
Companies Act 2014 of Ireland (Companies Act 2014). Its registered office is 10 Earlsfort Terrace, Dublin 2,
D02 T380, Ireland. The Company is domiciled in Ireland and is tax resident in Cyprus.
Limited ('BOC PCL') with principal place of business in Cyprus. The Bank of Cyprus Holdings Group (the
'Group') comprises the Company, its subsidiary BOC PCL and the subsidiaries of BOC PCL, with
BOC PCL is a significant credit institution for the purposes of the SSM Regulation and has been designated
by the CBC as an 'Other Systemically Important Institution' (O-SII). The Group is subject to joint
supervision by the ECB and the CBC for the purposes of its prudential requirements.
The shares of the Company are listed and trading on the London Stock Exchange (LSE) and the Cyprus
Stock Exchange (CSE).
Consolidated Financial Statements
The Consolidated Financial Statements of the Company for the year ended 31 December 2021 (the
Consolidated Financial Statements) were authorised for issue by a resolution of the Board of Directors on 29
March 2022.
The statutory financial statements prepared in accordance with ESEF are published on the Group's website
www.bankofcyprus.com (Group/Investor Relations/Financial Results).
2. Summary of significant accounting policies
2.1 Basis of preparation
The Consolidated Financial Statements have been prepared on a historical cost basis, except for properties
held for own use and investment properties, investments at fair value through other comprehensive income
(FVOCI), financial assets (including loans and advances to customers and investments) at fair value through
profit or loss (FVPL) and derivative financial assets and derivative financial liabilities that have been
measured at fair value, non-current assets held for sale measured at fair value less costs to sell and stock of
property measured at net realisable value where this is lower than cost. The carrying values of recognised
assets and liabilities that are hedged items in fair value hedges, and otherwise carried at cost, are adjusted
to record changes in fair value attributable to the risks that are being hedged.
Presentation of the Consolidated Financial Statements
The Consolidated Financial Statements are presented in Euro (€) and all amounts are rounded to the
nearest thousand, except where otherwise indicated. A comma is used to separate thousands and a dot is
used to separate decimals.
The Group presents its balance sheet broadly in order of liquidity. An analysis regarding expected recovery
or settlement of assets and liabilities within twelve months after the balance sheet date and more than
twelve months after the balance sheet date is presented in Note 44.
Statement of compliance
The Consolidated Financial Statements have been prepared in accordance with the International Financial
Reporting Standards (IFRSs) as adopted by the European Union (EU) and with those parts of the Companies
Act 2014 applicable to companies reporting under IFRSs.
2.2 Accounting policies and changes in accounting policies and disclosures
The Consolidated Financial Statements contain a summary of the accounting policies adopted in the
preparation of the Consolidated Financial Statements.
The accounting policies adopted are consistent with those of the previous year, except for the adoption of
new and amended standards and interpretations as explained in Note 2.2.1.
60
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.2 Accounting policies and changes in accounting policies and disclosures (continued)
2.2.1 New and amended standards and interpretations
The Group applied for the first time certain standards and amendments, which are effective for annual
periods beginning on or after 1 January 2021. The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet effective.
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Amendments relating to Interest Rate Benchmark Reform
(Phase 2 amendments)
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 were amended in August 2020, which are effective for periods
beginning on or after 1 January 2021 with earlier adoption permitted. The Interest Rate Benchmark
Reform—Phase 2 amendments deal with issues affecting financial reporting during the implementation of
the benchmark rate reform. The objective of the amendments is to provide certain reliefs to companies
when changes are made to the contractual cash flows or hedging relationships resulting from interest rate
benchmark reform. The amendments also provide additional temporary exceptions from applying specific
hedge accounting requirements of IAS 39 and IFRS 9 to hedge accounting relationships, which will generally
allow hedging accounting relationships directly affected by the BMR reform to continue.
Changes in the basis for determining contractual cash flows
Changes in the basis for determining the contractual cash flows of a financial instrument that are required
by the reform are accounted for by updating the effective interest rate, without the recognition of an
immediate gain or loss. This practical expedient is only applied where the change to the contractual cash
flows is necessary as a direct consequence of the reform and the new basis for determining the contractual
cash flows is economically equivalent to the previous basis.
For additional changes made to the basis for determining the contractual cash flows of a financial
instrument to those required by the reform, the practical expedient is applied first, after which the normal
IFRS 9 requirements for modifications of financial instruments is applied.
Hedge accounting
The IAS 39 requirements in respect of hedge accounting have been amended in two phases. The Phase 1
amendments, which were adopted by the Group in 2019, provide relief to the hedge accounting
requirements prior to changing a hedge relationship due to the interest rate benchmark reform. The Phase
2 amendments provide relief when changes are made to hedge relationships as a result of the interest rate
benchmark reform. The Group may apply the following reliefs where changes are made to hedge
relationships as a result of the BMR reform:
Under a temporary exception, changes to the hedge designation and hedge documentation due
to the interest rate benchmark reform would not constitute the discontinuation of the hedge
relationship nor the designation of a new hedging relationship.
In respect of the retrospective hedge effectiveness assessment, the Group may elect on a hedge-
by-hedge basis to reset the cumulative fair value changes to zero when the exception to the
retrospective assessment ends (Phase 1 relief). Any hedge ineffectiveness will continue to be
measured and recognised in full in profit or loss.
Amounts accumulated in the cash flow hedge reserve would be deemed to be based on the
alternative benchmark rate (on which the hedge future cash flows are determined) when there is
a change in basis for determining the contractual cash flows.
For hedges of groups of items (such as those forming part of a macro cash flow hedging
strategy), the amendments provide relief for items within a designated group of items that are
amended for changes directly required by the reform.
In respect of whether a risk component of a hedged item is separately identifiable, the
amendments provide temporary relief to entities to meet this requirement when an alternative
risk free rate (RFR) financial instrument is designated as a risk component. These amendments
allow entities upon designation of the hedge to assume that the separately identifiable
requirement is met if the entity reasonably expects the RFR risk will become separately
identifiable within the next 24 months. This relief applies to each RFR on a rate-by-rate basis and
starts when the entity first designates the RFR as a non-contractually specified risk component.
These amendments did not have a material impact on the results and financial position of the Group during
the year ended 31 December 2021. Please refer to Note 46 for further information.
61
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.2 Accounting policies and changes in accounting policies and disclosures (continued)
2.2.1 New and amended standards and interpretations (continued)
IFRS 4: Insurance Contracts – Extension of the Temporary Exemption from Applying IFRS 9 (amendments)
The IASB published the amendments to IFRS 4 'Extension of the Temporary Exemption from Applying IFRS
9' to defer the fixed expiry date of the amendment to annual periods beginning on or after 1 January 2023.
The amendments did not have a material impact on the results and financial position of the Group.
IFRS 16: Leases COVID-19 Related rent concessions (amendment)
The IASB published 'amendments to IFRS 16 covering COVID-19-Related Rent Concessions’. These provide
lessees with an exemption from assessing whether a COVID-19 related rent concession is a lease
modification. The amendment was effective for annual reporting periods beginning on or after 1 June 2020.
The amendments did not have a material impact on the results and financial position of the Group.
2.3 Standards and Interpretations that are issued but not yet effective
2.3.1 Standards and Interpretations issued by the IASB and adopted by the EU
IFRS 17: Insurance Contracts (including Amendments to IFRS 17 issued on 25 June 2020)
The standard is effective for annual periods beginning on or after 1 January 2023 with earlier application
permitted. IFRS 17 replaces IFRS 4 and it establishes principles for the recognition, measurement,
presentation and disclosure of insurance contracts issued. It also requires similar principles to be applied to
reinsurance contracts held and investment contracts with discretionary participation features issued. The
objective is to ensure that entities provide relevant information in a way that faithfully represents those
contracts. This information gives a basis for users of financial statements to assess the effect that contracts
within the scope of IFRS 17 have on the financial position, financial performance and cash flows of an entity.
IFRS 17 divides insurance contracts into groups and it will recognise and measure at a risk-adjusted present
value of the future cash flows plus an amount representing the unearned profit in the group of contracts
(the contractual service margin). It also recognises profit from a group of insurance contracts over the
period the entity provides insurance coverage and as the entity is released from risk. If a group of contracts
is expected to be onerous over the remaining coverage period, an entity recognises the loss immediately.
The standard contains a core measurement approach, the 'general model', as well as an adaptation of the
general model, the 'variable fee approach' that should be applied to certain types of contracts with direct
participation features. If certain criteria are met, an entity may apply a simplified measurement approach,
the 'premium allocation approach', which allows an entity to measure the amount of remaining coverage by
allocating the premium over the coverage period (mainly applicable for non-life contracts with up to one-
year coverage).
The Group is in the process of implementing IFRS 17 and is assessing the impact of the standard on its
results and financial position. Industry practice and interpretation of the standard are still developing and
therefore, the likely financial impact of its implementation remains uncertain. However, the Group has the
following expectations as to the impact of the standard compared with the current accounting policy for
insurance contracts:
Under IFRS 17, there will be no present value of in-force life insurance business (‘PVIF’) asset
recognised. Instead the estimated future profit will be included in the measurement of the
insurance contract liability as the contractual service margin (‘CSM’), representing unearned
profit, and this will be gradually recognised in revenue as services are provided over the duration
of the insurance contract. While the profit over the life of an individual contract will be
unchanged, its emergence will be later under IFRS 17. The PVIF asset will be eliminated to equity
on transition, together with other adjustments to assets and liabilities to reflect IFRS 17
measurement requirements and any consequential amendments to financial assets in the scope
of IFRS 9.
IFRS 17 requires increased use of current market values in the measurement of insurance
liabilities. Changes in market conditions for certain products measured under the general
measurement approach are immediately recognised in profit or loss, while changes in market
conditions for other products measured under the variable fee approach are included in the
measurement of CSM.
62
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.3 Standards and Interpretations that are issued but not yet effective (continued)
2.3.1 Standards and Interpretations issued by the IASB and adopted by the EU (continued)
In accordance with IFRS 17, directly attributable costs will be incorporated in the CSM and
recognised in the results of insurance services as a reduction in reported revenue, as profit is
recognised over the duration of insurance contracts. Costs that are not directly attributable will
remain in operating expenses. This will result in a reduction in reported operating expenses
compared with the current accounting policy.
For non-life insurance business, where risks under such policies usually cover a period of 12
months, the Group is expected to apply mainly the simplified measurement model, i.e. the
'premium allocation approach', which allows an entity to measure the amount of remaining
coverage by allocating the premium over the coverage period.
IFRS 16: Leases COVID-19-Related Rent Concessions beyond 30 June 2021 (amendment)
The amendment increases the scope of COVID-19-related rent concessions (amendment to IFRS 16 issued
in May 2020), which provides lessees with an exemption from assessing whether rent concessions that
occur as a direct consequence of the COVID-19 pandemic and meet specified conditions are lease
modifications and, instead, to account for those rent concessions as if they were not lease modifications.
The amendment increases the eligibility period for the application of the exemption by 12 months from 30
June 2021 to 30 June 2022. The amendment is effective for annual reporting periods beginning on or after 1
April 2021, with early application permitted. The Group does not expect this amendment to have a material
impact on its results and financial position.
IFRS 3: Business Combinations (amendments)
The IASB has published 'Reference to the Conceptual Framework (Amendments to IFRS 3)' with
amendments to IFRS 3 'Business Combinations' that update an outdated reference in IFRS 3 without
significantly changing the accounting requirements for business combinations. The amendments are
effective for annual periods beginning on or after 1 January 2022, with earlier application permitted if an
entity also applies all other updated references (published together with the updated Conceptual
Framework) at the same time or earlier. The Group does not expect these amendments to have a material
impact on its results and financial position.
IAS 16: Property, Plant and Equipment – Proceeds before Intended Use (amendments)
The amendments to the standard prohibit an entity from deducting from the cost of an item of property,
plant and equipment any proceeds from selling items produced while bringing that asset to the location and
condition necessary for it to be capable of operating in the manner intended by management. Instead, an
entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or
loss. They are effective for annual periods beginning on or after 1 January 2022, with earlier application
permitted. An entity will apply the amendments retrospectively only to items of property, plant and
equipment that are brought to the location and condition necessary for them to be capable of operating in
the manner intended by management on or after the beginning of the earliest period presented in the
financial statements in which the entity first applies the amendments. The Group does not expect these
amendments to have a material impact on its results and financial position.
IAS 37: Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts – Cost of Fulfilling a
Contract (amendments)
The changes in Onerous Contracts — Cost of Fulfilling a Contract specify that the ‘cost of fulfilling’ a contract
comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be
incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of
other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation
charge for an item of property, plant and equipment used in fulfilling the contract). The amendments are
effective for annual periods beginning on or after 1 January 2022, with earlier application permitted. The
Group does not expect these amendments to have a material impact on its results and financial position.
Annual Improvements to IFRS Standards 2018–2020 Cycle
Annual Improvements to IFRS Standards 2018–2020 Cycle makes amendments to the following standards:
IFRS 1 First-time Adoption of International Financial Reporting Standards: the amendment
permits a subsidiary that applies IFRS 1 to measure cumulative translation differences using the
amounts reported by its parent, based on the parent’s date of transition to IFRSs.
63
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.3 Standards and Interpretations that are issued but not yet effective (continued)
2.3.1 Standards and Interpretations issued by the IASB and adopted by the EU (continued)
IFRS 9 Financial Instruments: the amendment clarifies which fees an entity includes when it
applies the ‘10 per cent’ test of IFRS 9 in assessing whether to derecognise a financial liability. An
entity includes only fees paid or received between the entity (the borrower) and the lender,
including fees paid or received by either the entity or the lender on the other’s behalf.
IFRS 16 Leases: the amendment to Illustrative Example 13 accompanying IFRS 16 removes from
the example the illustration of the reimbursement of leasehold improvements by the lessor in
order to resolve any potential confusion regarding the treatment of lease incentives that might
arise because of how lease incentives are illustrated in that example.
IAS 41 Agriculture: the amendment removes the requirement of IAS 41 for entities to exclude
taxation cash flows when measuring the fair value of a biological asset using a present value
technique, which ensures consistency with the requirements in IFRS 13.
The amendments to IFRS 1, IFRS 9 and IAS 41 are all effective for annual periods beginning on or after 1
January 2022, with earlier application permitted, whereas the amendment to IFRS 16 only regards an
illustrative example. The Group does not expect these amendments to have a material impact on its results
and financial position.
2.3.2 Standards and Interpretations issued by the IASB but not yet adopted by the EU
IAS 1 Presentation of Financial Statements: classification of Liabilities as Current or Non-current
(amendments)
The IASB issued amendments to IAS 1 Presentation of Financial Statements (the amendments) to specify
the requirements for classifying liabilities as current or non-current. The amendments clarify: (a) what is
meant by a right to defer settlement, (b) that a right to defer must exist at the end of the reporting period
and (c) that classification is unaffected by the likelihood that an entity will exercise its deferral right. Terms
of a liability that could, at the option of the counterparty, result in its settlement by the transfer of the
entity’s own equity instruments do not affect its classification as current or non-current if, the entity
classifies the option as an equity instrument, recognising it separately from the liability as an equity
component of a compound financial instrument. The amendments are effective for annual periods beginning
on or after 1 January 2023, with earlier application permitted. The Group does not expect these
amendments to have a material impact on its results and financial position.
IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies
(amendments)
The amendments to IAS 1 require companies to disclose their material accounting policy information rather
than their significant accounting policies. The amendments to IFRS Practice Statement 2 provide guidance
on how to apply the concept of materiality to accounting policy disclosures. The amendments are effective
for annual reporting periods beginning on or after 1 January 2023, with early application permitted. The
Group does not expect these amendments to have an impact on its results and financial position.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates
(amendments)
The amendments introduce the definition of accounting estimates and include other amendments to IAS 8
to help entities distinguish changes in accounting estimates from changes in accounting policies. The
amendments are effective for annual reporting periods beginning on or after 1 January 2023, with early
application permitted. The Group does not expect these amendments to have a material impact on its
financial results and financial position.
IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction
(amendments)
The amendments require companies to recognise deferred tax on transactions that, on initial recognition,
give rise to equal amounts of taxable and deductible temporary differences. The proposed amendments will
typically apply to transactions such as leases for the lessee and decommissioning obligations. The
amendments are effective for annual reporting periods beginning on or after 1 January 2023, with early
application permitted. The Group does not expect these amendments to have a material impact on its
results and financial position.
64
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.3 Standards and Interpretations that are issued but not yet effective (continued)
2.3.2 Standards and Interpretations issued by the IASB but not yet adopted by the EU
(continued)
IFRS 17 Insurance contracts: Initial application of IFRS 17 and IFRS 9 - comparative information
(amendments)
The amendment is a transition option relating to comparative information about financial assets presented
on initial application of IFRS 17. The amendment is aimed at helping entities to avoid temporary accounting
mismatches between financial assets and insurance contract liabilities, and therefore improve the usefulness
of comparative information for users of financial statements. IFRS 17 incorporating the amendment is
effective for annual reporting periods beginning on or after 1 January 2023. The Group is analysing the
potential impact as part of its IFRS 17 implementation project.
2.4 Basis of consolidation
The Consolidated Financial Statements comprise the Consolidated Financial Statements of the Group as at
and for the year ended 31 December 2021. The financial statements of the subsidiaries are prepared as of
the same reporting date as that of the Company, using consistent accounting policies.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Specifically,
the Group controls an investee only if the Group has:
power over an investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee)
exposure, or rights, to variable returns from its involvement with the investee
the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights results in control. To support this
presumption and when the Group has less than a majority of the voting rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has power over an investee including
any contractual arrangements with the other vote holders, rights arising from other contractual
arrangements, and the Group’s voting and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts indicate that there are changes to any
of the three elements of control.
Assets, liabilities, income and expenses of subsidiaries acquired or disposed of during the year are included
in the Consolidated Financial Statements from the date of acquisition or up to the date of disposal,
respectively. Profit or loss and each component of other comprehensive income (OCI) are attributed to the
equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-
controlling interests having a deficit balance. Non-controlling interests represent the portion of profit or loss
and net assets not held by the Group, directly or indirectly. The non-controlling interests are presented
separately in the consolidated income statement and within equity from the Company owners’ equity.
All intra-group balances and transactions are eliminated on consolidation.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as a transaction
between the owners, which affects equity. As a result, no goodwill arises nor any gain/loss is recognised in
the consolidated income statement from such transactions. The foreign exchange differences which relate to
the share of non-controlling interests being sold/acquired are reclassified between the foreign currency
reserve and non-controlling interests.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.5 Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at the acquisition date fair value and
the amount of any non-controlling interests in the acquiree. For each business combination the Group elects
whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share
of the acquiree’s identifiable net assets. Any excess of the cost of acquisition over the Group’s share of the
fair values of the identifiable net assets acquired is recognised as goodwill on the consolidated balance
sheet. Where the Group’s share of the fair values of the identifiable net assets is greater than the cost of
acquisition (i.e. negative goodwill), the difference is recognised directly in the consolidated income
statement in the year of acquisition. Acquisition related costs are expensed as incurred and included in
other operating expenses.
If the business combination is achieved in stages, the previously held equity interest is remeasured at fair
value and any resulting gain or loss is recognised in the consolidated income statement.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with contractual terms, economic circumstances and pertinent
conditions as at the acquisition date.
2.6 Investments in associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power
to participate in the financial and operating policy decisions of the investee, but is not control or joint
control over those policy decisions.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed
sharing of control of an arrangement, which exists only when decisions about the relevant activities require
unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control are similar to those necessary
to determine control over subsidiaries.
In the Consolidated Financial Statements, the Group’s investments in associates and joint ventures are
accounted for using the equity method of accounting.
Under the equity method, the investment in an associate or a joint venture is carried in the consolidated
balance sheet at cost plus post-acquisition changes in the Group’s share of the net assets of the associate
or joint venture. The Group’s share of the results of the associate or joint venture is included in the
consolidated income statement. Losses of the associate or joint venture in excess of the Group’s cost of the
investment are recognised as a liability only when the Group has incurred obligations on behalf of the
associate or joint venture. Goodwill relating to an associate or joint venture is included in the carrying
amount of the investment and is not tested for impairment separately.
Any excess of the Group’s share of the net fair value of the associate’s or joint venture’s identifiable assets
over the cost of the investment (i.e. negative goodwill) is included as income in the determination of the
Group’s share of the associate’s or joint venture’s profit or loss in the period in which the investment is
acquired. The aggregate of the Group’s share of profit or loss of an associate or a joint venture is shown on
the face of the consolidated income statement and represents profit or loss before tax. The associated tax
charge is disclosed in income tax.
The Group recognises its share of any changes in the equity of the associate or the joint venture through
the consolidated statement of changes in equity. Profits and losses resulting from transactions between the
Group and the associate or the joint venture are eliminated to the extent of the Group’s interest in the
associate or the joint venture.
The Group applies equity accounting only up to the date an investment in associates or joint ventures meets
the criteria for classification as held for sale. From then onwards, the investment in associates or joint
ventures is measured at the lower of its carrying amount and fair value less costs to sell.
The financial statements of the associates or joint ventures are prepared as of the same reporting date as
that of the Company, using consistent accounting policies.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.7 Foreign currency translation
The Consolidated Financial Statements are presented in Euro (€), which is the functional and presentation
currency of the Company and its subsidiaries in Cyprus. Each overseas branch or subsidiary of the Group
determines its own functional currency and items included in the financial statements of each entity are
measured using that functional currency. The Group uses the direct method of consolidation and on disposal
of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises
from using this method.
2.7.1 Transactions and balances
Transactions in foreign currencies are recorded using the functional currency rate of exchange ruling at the
date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency
rate of exchange ruling at the reporting date. All differences are taken to ‘Net foreign exchange gains’ in the
consolidated income statement, with the exception of differences on foreign currency assets/liabilities that
provide a hedge against the net investments in subsidiaries and overseas branches. These differences are
recognised in other comprehensive income in the ‘Foreign currency translation reserve’ until the disposal or
liquidation of the net investment, at which time the cumulative amount is reclassified to the consolidated
income statement.
Non-monetary items that are measured at historic cost in a foreign currency are translated using the
exchange rates ruling as at the dates of the initial transactions. Non-monetary items measured at fair value
in a foreign currency are translated using the exchange rates ruling at the date when the fair value is
determined.
2.7.2 Subsidiary companies and branches
At the reporting date, the assets and liabilities of subsidiaries (including special purpose entities that the
Group consolidates) and branches whose functional currency is other than the Group’s presentation
currency are translated into the Group’s presentation currency at the rate of exchange ruling at the
reporting date, and their income statements are translated using the average exchange rates for the year.
Foreign exchange differences arising on translation are recognised in other comprehensive income in the
‘Foreign currency translation reserve’. On disposal or liquidation of a subsidiary or branch, the cumulative
amount of the foreign exchange differences relating to that particular overseas operation, is reclassified to
the consolidated income statement as part of the profit/loss on disposal/dissolution of subsidiaries.
2.8 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 of persons that
allocate resources to and assess the performance of the operating segments.
The chief operating decision-maker is the Group Executive Committee.
2.9 Turnover
Group turnover as presented in the Consolidated Income Statement is analysed in Note 6.
2.10 Revenue from contracts with customers
The Group recognises revenue when control of the promised goods or services is transferred to customers
in return of an amount that reflects the consideration to which the Group expects to be entitled in exchange
for those goods or services. The revenue recognition model applies the following five steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the Group satisfies a performance obligation.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.10 Revenue from contracts with customers (continued)
The performance obligation notion in effect represents a promise in a contract with a customer to transfer
to the customer either: (a) a good or service (or a bundle of goods or services) that is distinct; or (b) a
series of distinct goods or services that are substantially the same and that have the same pattern of
transfer to the customer.
Contract balances
A contract asset is the right to consideration in exchange for services transferred to the customer. If the
Group performs by transferring services to a customer before the customer pays consideration or before
payment is due, a contract asset is recognised for the earned consideration that is conditional.
Receivables are recorded where the Group provides services to clients, consideration is due immediately
upon satisfaction of a point in time service or at the end of a prespecified period for an over the time
service. It is the Group’s right to an amount of consideration that is unconditional (i.e. only the passage of
time is required before payment of the consideration is due). The initial recognition and subsequent
measurement of such receivables is disclosed in Notes 2.15 to 2.19.
Contract liabilities relate to payments received from customers where the Group is yet to satisfy its
performance obligation. Contract liabilities are recognised as revenue when the Group performs under the
contract.
Contract assets and receivables are recorded within ‘Prepayments, accrued income and other assets’ and
contract liabilities within ‘Accruals, deferred income, other liabilities and other provisions’ in the
consolidated balance sheet.
2.10.1 Fee and commission income
The Group earns fee income from a diverse range of services it provides to its clients. Fee income can be
divided into two broad categories:
fees earned from services that are provided over a certain period of time, such as asset or
portfolio management, custody services and certain advisory services; and
fees earned from point in time services such as executing transactions and brokerage fees (e.g.
securities and derivative execution and clearing).
Over time services
For fees earned from services that are provided over a certain period of time revenue is recognised pro-rata
over the service period, provided the fees are not contingent on successfully meeting specified performance
criteria that are beyond the control of the Group. Costs to fulfil over time services are recorded in the
consolidated income statement immediately, because such services are considered to be a series of services
that are substantially the same from day to day and have the same pattern of transfer.
Point in time services
For fees earned from providing transaction-type services, revenue is recognised when the service has been
completed, provided such fees are not subject to refund or another contingency beyond the control of the
Group. Incremental costs to fulfil services provided at a point in time are typically incurred and recorded at
the same time as the performance obligation is satisfied and revenue is earned, and are therefore not
recognised as an asset, e.g. brokerage commissions.
Fee and commission income is measured based on consideration specified in a legally enforceable contract
with a customer, excluding amounts such as taxes collected on behalf of third parties. Consideration can
include both fixed and variable amounts. Variable consideration includes refunds, discounts and other
amounts that are contingent on the occurrence or non-occurrence of a future event. Variable consideration
that is contingent on an uncertain event can only be recognised to the extent that it is highly probable that
a significant reversal in the amount of cumulative revenue for a contract will not occur.
2.10.2 Dividend income
Dividend income is recognised in the consolidated income statement when the Group’s right to receive
payment is established i.e. upon approval by the general meeting of the shareholders.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.10 Revenue from contracts with customers (continued)
2.10.3 Rental income
Rental income from investment properties and stock of property is accounted for on a straight-line basis
over the period of the lease and is recognised in the consolidated income statement in ‘Other income’.
2.10.4 Gains on disposal of investment property
Gains on disposal of investment property are recognised in the consolidated income statement in ‘Net
gains/(losses) from revaluation and disposal of investment properties’ when the buyer accepts delivery and
the control of the property is transferred to the buyer.
2.10.5 Gains on disposal of stock of property
Gains on disposal of stock of property are recognised in the consolidated income statement when the buyer
accepts delivery and the control of the property is transferred to the buyer.
2.11 Recognition of interest income/expense and income/expense similar to interest
The Group calculates interest income/expense by applying the effective interest rate (EIR) to the gross
carrying amount of financial assets, unless the asset is credit-impaired. For financial assets and financial
liabilities measured at FVPL which accrue interest, the Group follows the principles of the effective interest
method with the only difference being the treatment of fees that are integral to the financial asset/financial
liabilities. That is, for financial assets and financial liabilities classified at FVPL the fees are recognised as
revenue or expense when the instrument is initially recognised and not as part of the EIR calculation.
When a financial asset becomes credit-impaired and is therefore classified as Stage 3, interest income is
calculated by applying the EIR to the amortised cost of the financial asset, being the gross carrying amount
of the financial asset less any loss allowance. If the financial asset cures and is no longer credit-impaired,
the Group reverts to calculating interest income on the gross carrying amount. In such cases, the Group
unwinds the discount on the expected credit losses (ECL) through the 'Credit losses to cover credit risk on
loans and advances to customers' line in the consolidated income statement.
Interest income on purchased or originated credit-impaired (POCI) financial assets is recognised using the
credit adjusted effective interest rate (CAEIR) calculated at initial recognition. The CAEIR is applied on the
amortised cost of the financial asset, being the gross carrying amount of the financial asset less any loss
allowance.
Interest income from financial assets at amortised cost and financial assets at FVOCI are presented within
the caption ‘Interest income’, while interest income on financial instruments at FVPL is presented within the
caption ‘Income similar to interest income’ in the consolidated income statement. Interest expense on
financial liabilities at amortised cost is presented within the caption ‘Interest expense’, with interest expense
on financial instruments at FVPL presented within the caption ‘Expense similar to interest expense’ in the
consolidated income statement. All form part of the ‘Net interest income’.
The Group has funding from central banks with negative interest rates. The Group classifies the interest on
these liabilities within interest income. Negative interest on financial liabilities is disclosed in Note 7.
The Group holds loans and advances to banks and central banks with negative interest rates. The Group
classifies the interest on these assets within interest expense. Negative interest on financial assets is
disclosed in Note 8.
The effective interest rate method
Interest income and expense are recognised in the consolidated income statement by applying the effective
interest rate (EIR) for all financial instruments measured at amortised cost and debt instruments at FVOCI.
The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected
life of the financial instrument to the gross carrying amount of the financial asset or the amortised cost of
the financial liability.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.11 Recognition of interest income/expense and income/expense similar to interest
(continued)
The EIR, and therefore the amortised cost of the asset, is calculated by taking into account any discount or
premium on acquisition, fees and costs that are an integral part of the EIR. Fees and incremental costs that
are directly attributable to loans and advances to customers are also deferred and amortised as part of
interest income using the effective interest rate method.
For floating-rate financial instruments, periodic re-estimation of cash flows to reflect the movements in the
market rates of interest also alters the EIR, but when instruments were initially recognised at an amount
equal to the principal, re-estimating the future interest payments does not significantly affect the carrying
amount of the asset or the liability.
The carrying amount of a financial asset or liability is adjusted if the Group revises its estimates of
payments or receipts. The adjusted carrying amount is calculated based on the original effective interest
rate and the change in carrying amount is recorded in ‘Net gains/(losses) on financial instrument
transactions' for debt securities, or in ‘Changes in expected cash flows’ component of the 'Credit losses to
cover credit risk on loans and advances to customers' for loans and advances to customers.
2.12 Retirement benefits
The Group operates both defined contribution and defined benefit retirement plans.
Defined contribution plans
The Group recognises obligations in respect of the accounting period in the consolidated income statement.
Any unpaid contributions at the reporting date are included as a liability.
Defined benefit plans
The cost of providing benefits for defined benefit plans is estimated separately for each plan using the
Projected Unit Credit Method of actuarial valuation.
The defined benefit asset or liability comprises the present value of the defined benefit obligations (using a
discount rate based on high quality corporate bonds), reduced by the fair value of plan assets out of which
the obligations are to be settled. Plan assets are assets that are held by a funded plan or qualifying
insurance policies. Any net defined benefit surplus is limited to the present value of available refunds and
reductions in future contributions to the plan. Fair value is based on market price information and in the
case of quoted securities it is the published bid price.
The net charge to the consolidated income statement mainly comprises the service costs and the net
interest on the net defined benefit asset or liability, and is presented in staff costs. Service costs comprise
current service costs, past-service costs, gains and losses or curtailments and non-routine settlements. Re-
measurements, comprising actuarial gains and losses, the effect of the asset ceiling (excluding net interest),
and the return on plan assets (excluding net interest), are recognised immediately on the consolidated
balance sheet with a corresponding debit or credit in other comprehensive income. Re-measurements are
not reclassified to profit or loss in subsequent periods.
Actuarial gains and losses comprise experience adjustments (the effects of differences between the previous
actuarial assumptions and what has actually occurred), as well as the effects of changes in actuarial
assumptions.
2.13 Tax
Current income tax and deferred tax
Tax on income is provided in accordance with the fiscal regulations and rates which apply in the countries
where the Group operates and is recognised as an expense in the period in which the income arises.
Deferred tax is provided using the liability method. Current income tax assets and liabilities are measured
at the amount expected to be recovered from or paid to the tax authorities. Current income tax and
deferred tax relating to items recognised directly in equity is recognised directly in equity.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.13 Tax (continued)
Deferred tax liabilities are recognised for all taxable temporary differences between the tax basis of assets
and liabilities and their carrying amounts at the reporting date, which will give rise to taxable amounts in
future periods. Deferred tax liabilities are recognised for all taxable temporary differences associated with
investments in subsidiary and associate companies and branches, except where the timing of the reversal of
the temporary differences can be controlled and it is probable that the temporary differences will not
reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences and carry-forward of unutilised
tax losses to the extent that it is probable that taxable profit will be available, against which the deductible
temporary differences and carry-forward of unutilised tax losses can be utilised. The carrying amount of
deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to utilise all or part of the deductible temporary
differences or tax losses. Unrecognised deferred tax assets are reassessed at each reporting date and are
recognised to the extent that it has become probable that future taxable profit will allow the deferred tax
asset to be recovered.
Deferred tax assets and liabilities are measured at the amount that is expected to be paid to or recovered
from the tax authorities, after taking into account the tax rates and legislation that have been enacted or
substantially enacted by the reporting date.
The deferred tax assets arising from specific tax losses and which are subject to the Income Tax Law
Amendment 28 (I) of 2019, are accounted for on the same basis as other deferred tax assets and can be
converted into tax credits. These tax losses are converted into 11 equal annual instalments and each
instalment can be claimed as a deductible expense in the determination of the taxable income for the
relevant year. Any amount of the annual instalment not utilised is converted into a tax credit and can be
utilised in the tax year following the tax year to which this tax credit relates to. Any unutilised tax credit in
the relevant year is converted into a receivable from the Cyprus Government. Further details are disclosed
in Note 17.
Current and deferred tax assets and liabilities are offset when they arise from the same tax reporting entity
and relate to the same tax authority and when the legal right to offset exists.
Indirect Tax Value Added Tax (VAT)
Expenses and assets are recognised net of the amount of VAT, except:
when the VAT incurred on a purchase of assets or services is not recoverable from the tax
authorities, in which case, the VAT suffered is recognised as part of the cost of acquisition of the
asset or as part of the expense item, as applicable.
when receivables and payables are stated with the amount of VAT charged. The amount of VAT
recoverable from, or payable to the tax authorities, is included as part of receivables or payables
in the consolidated balance sheet.
2.14 Financial instruments - initial recognition
2.14.1 Date of recognition
‘Balances with central banks’, ‘Loans and advances to banks’, ‘Loans and advances to customers’, ‘Deposits
by banks’, ‘Funding from central banks’ and ‘Customer deposits’ are recognised when cash is received by
the Group or advanced to the borrowers. All other financial assets and financial liabilities are initially
recognised on the trade date. Purchases or sales of financial assets, where delivery is required within a time
frame established by regulations or by market convention, are also recognised on the trade date, i.e. the
date that the Group commits to purchase or sell the asset. Derivatives are also recognised on a trade date
basis.
2.14.2 Initial recognition and measurement of financial instruments
The classification of financial assets on initial recognition depends on their contractual terms and the
business model for managing the instruments, as described in Note 2.15.
All financial instruments are measured initially at their fair value plus, in the case of financial assets and
liabilities not measured at FVPL, any directly attributable incremental costs of acquisition or issue.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.14 Financial instruments - initial recognition (continued)
2.14.2 Initial recognition and measurement of financial instruments (continued)
When the fair value of financial instruments at initial recognition differs from the transaction price, the
Group accounts for the Day 1 profit or loss, as described in Note 2.14.3 below.
2.14.3 Day 1 profit or loss
When the transaction price of the instrument differs from the fair value at origination and the fair value is
based on a valuation technique using only inputs observable in market transactions, the Group recognises
the difference between the transaction price and fair value in 'Net gains/(losses) on financial instrument
transactions and disposal/dissolution of subsidiaries and associates' caption. In the cases, where the fair
value is based on models for which some of the inputs are not observable, the difference between the
transaction price and the fair value is deferred and is only recognised in profit or loss when the inputs
become observable, or when the instrument is derecognised.
2.14.4 Measurement categories of financial assets and financial liabilities
Financial assets are measured either at amortised cost, FVOCI or FVTPL.
The Group classifies and measures its derivatives and trading portfolios at FVPL. The Group may designate
financial instruments at FVPL, if doing so eliminates or significantly reduces measurement or recognition
inconsistencies.
Financial liabilities, other than loan commitments and financial guarantees are measured at amortised cost
or at FVPL when they are held for trading or relate to derivative instruments.
2.15 Classification and measurement of financial assets and financial liabilities
The classification and measurement of financial assets depends on how these are managed as part of the
business models the Group operates under and their contractual cash flow characteristics (whether the cash
flows represent solely payments of principle and interest (SPPI)).
Business model assessment
The Group assesses the business model at a portfolio level. The portfolio level is determined at the
aggregation level that reflects how the Group manages its financial assets and the business model is based
on observable factors which include:
How the performance of the business model and the financial assets held within that business
model are evaluated and reported to the Group's key management personnel;
The risks that affect the performance of the business model (and the financial assets held within
that business model) and, in particular, the way in which those risks are managed;
How managers of the business are compensated (for example, whether the compensation is
based on the fair value of the assets managed or on the contractual cash flows collected);
The expected frequency, value and timing of sales are also important aspects of the Group’s
assessment.
If cash flows after initial recognition are realised in a way that is different from the Group’s original
expectations, the Group does not change the classification of the remaining financial assets held in that
business model, but incorporates such information when assessing newly originated or newly purchased
financial assets going forward.
Contractual cash flows characteristics test (SPPI assessment)
The Group assesses whether the individual financial assets’ cash flows represent solely payments of
principal and interest on the principal amount outstanding at origination (SPPI test).
For the purposes of this assessment, principal is defined as the fair value of the financial asset on initial
recognition and may change over the life of the financial asset (for example, if there are repayments of
principal or amortisation of the premium/discount).
Interest is defined as consideration for the time value of money, for the credit risk associated with the
principal amount outstanding during a particular period of time and for other basic lending risks and costs
(e.g. liquidity risk and administrative costs), as well as a profit margin.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.15 Classification and measurement of financial assets and financial liabilities (continued)
In assessing whether contractual cash flows are SPPI, the Group applies judgement and considers the terms
that could change the contractual cash flows so that they would not meet the condition for SPPI, and be
inconsistent to a basic lending arrangement, including: (i) contingent and leverage features, (ii) interest
rates which are beyond the control of the Group or variable interest rate consideration, (iii) features that
could modify the time value of money, (iv) prepayment and extension options, (v) non-recourse
arrangements, and (vi) convertibility features.
Where the contractual terms of a financial asset introduce a more than de-minimis exposure to risks or
volatility that are inconsistent with a basic lending arrangement, the related financial asset will be measured
at FVPL.
2.15.1 Derivative financial instruments
Derivatives are recorded at fair value and classified as assets when their fair value is positive and as
liabilities when their fair value is negative. Subsequently, derivatives are measured at fair value.
Revaluations of trading derivatives are included in the consolidated income statement in ‘Net foreign
exchange gains’ in the case of currency derivatives and in ‘Net gains/(losses) on financial instrument
transactions and disposal/dissolution of subsidiaries and associates’ in the case of all other derivatives.
Interest income and expense are included in the ‘Income similar to interest income’ and ‘Expense similar to
interest expense’ captions respectively in the consolidated income statement.
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host
contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a
stand-alone derivative.
For hybrid contracts where the host contract is a financial asset within the scope of IFRS 9, the classification
and measurement criteria are based on the business model and SPPI assessment as described in the
classification of financial assets section of Note 2.15 and applied to the entire hybrid instrument.
Derivatives embedded in financial liabilities and non-financial host contracts, are treated as separate
derivatives and recorded at fair value if their economic characteristics and risks are not closely related to
those of the host contract, and the host contract is not itself measured at fair value with revaluation
recognised in the consolidated income statement. The embedded derivatives separated from the host are
carried at fair value, with revaluations recognised in ‘Net gains/(losses) on financial instrument transactions
and disposal/dissolution of subsidiaries and associates’ in the consolidated income statement. The host
contract is accounted for in accordance with the relevant standards.
2.15.2 Financial assets measured at amortised cost
Financial assets are measured at amortised cost if they meet both of the following conditions:
The financial asset is held within a business model with the objective to hold financial assets in
order to collect contractual cash flows;
The contractual terms of the financial asset give rise on specified dates to cash flows that are
SPPI on the principal amount outstanding.
This classification relates to cash and balances with central banks, loans and advances to banks, loans and
advances to customers that pass the SPPI test, debt securities held under the ‘Hold to collect’ business
model and other financial assets.
After their initial recognition, financial instruments measured at amortised cost are measured at amortised
cost using the effective interest rate method, less allowances for expected credit losses (ECL). Amortised
cost is calculated by taking into account any discount or premium on acquisition and fees that are an
integral part of the effective interest rate. The amortisation is included in ‘Interest income’ in the
consolidated income statement. The losses arising from impairment are recognised in the consolidated
income statement in ‘Credit losses to cover credit risk on loans and advances to customers’ in the case of
loans and advances to customers and in ‘Credit losses of other financial instruments’ for all other financial
instruments.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.15 Classification and measurement of financial assets and financial liabilities (continued)
2.15.3 Debt instruments measured at FVOCI
Debt instruments are measured at FVOCI if they meet both of the following conditions:
The financial asset is held within a business model the objective of which is achieved by both
collecting contractual cash flows and selling financial assets;
The contractual terms of the financial asset give rise on specified dates to cash flows that are
SPPI on the principal amount outstanding.
This classification relates to debt securities held under the ‘Hold to collect and sell’ business model that pass
the SPPI test.
FVOCI debt instruments are subsequently measured at fair value with gains and losses due to changes in
fair value recognised directly in other comprehensive income in the ‘Net gains/(losses) on investments in
debt instruments measured at FVOCI’ caption. Upon derecognition of these instruments, any accumulated
balances in other comprehensive income are reclassified to the consolidated income statement and reported
within ‘Net gains/(losses) on financial instrument transactions and disposal/dissolution of subsidiaries and
associates’ caption. The interest income, foreign exchange differences and ECL are recognised in the
consolidated income statement in the respective lines in the same manner as for financial assets at
amortised cost.
2.15.4 Financial assets or financial liabilities held for trading
Financial assets or financial liabilities held for trading represent assets and liabilities acquired or incurred
principally for the purpose of selling or repurchasing them in the near term and are recognised in the
consolidated balance sheet at fair value. Changes in the fair value are recognised in ‘Net gains on financial
instrument transactions and disposal/dissolution of subsidiaries and associates’ in the consolidated income
statement. Interest income and expense are included in the captions ‘Income similar to interest income’
and ‘Expense similar to interest expense’ respectively in the consolidated income statement according to
the terms of the relevant contract, while dividend income is recognised in ‘Other income’ when the right to
receive payment has been established.
This classification relates to debt and equity instruments that have been acquired principally for the
purposes of sale or repurchase in the near term.
2.15.5 Financial assets or financial liabilities at FVPL
Financial assets and financial liabilities, other than those held for trading, classified in this category are
those that are designated by management on initial recognition or are mandatorily required to be measured
at fair value under IFRS 9.
Management only designates an instrument at FVPL at initial recognition when one of the following criteria
are met:
(a) the designation eliminates or significantly reduces the inconsistency that would otherwise arise
from the measurement of the assets or liabilities or the recognition of gains or losses on them on a
different basis, or
(b) the liabilities are part of a group of financial liabilities or financial assets and financial liabilities
which are managed and their performance is evaluated on a fair value basis, in accordance with a
documented risk management or investment strategy, or
(c) the liabilities contain an embedded derivative, unless the embedded derivative does not
significantly modify the cash flows of the instrument or it is clear, with little or no analysis, that the
embedded derivative could not be separated.
Such designation is determined on an instrument-by-instrument basis.
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.15 Classification and measurement of financial assets and financial liabilities (continued)
2.15.5 Financial assets or financial liabilities at FVPL (continued)
Financial assets and financial liabilities at FVPL are recorded in the consolidated balance sheet at fair value.
Changes in the fair value are recognised in ‘Net gains/(losses) on financial instrument transactions and loss
on disposal/dissolution of subsidiaries and associates’ in the consolidated income statement. Interest
income and expense are included in the captions ‘Income similar to interest income’ and ‘Expense similar to
interest expense’ respectively in the consolidated income statement. Dividend income is recognised in
‘Other income’ in the consolidated income statement when the right to receive payment has been
established.
In addition assets held under unit-linked insurance contracts and certain non-linked insurance contracts
issued by insurance subsidiaries are designated at FVPL.
Financial assets mandatorily classified at FVPL include certain loans and advances to customers, certain
investment fund holdings and other securities for which the contractual cash flows do not meet the SPPI
test, or the financial assets are part of a portfolio held within a business model under which they are
managed and their performance is evaluated on a fair value basis.
2.15.6 Equity instruments measured at FVOCI
At initial recognition, the Group can make an irrevocable election to classify an investment in an equity
instrument at FVOCI, when that meets the definition of Equity under IAS 32 Financial Instruments:
'Presentation', and is not held for trading. Such classification is determined on an instrument-by-instrument
basis.
Fair value gains and losses on these equity instruments are recognised in OCI and are not recycled to profit
or loss upon derecognition, but are transferred directly to retained earnings. Dividends on equity
investments are recognised in the consolidated income statement and reported within ‘Other Income’ when
the right to receive payment has been established. Equity instruments measured at FVOCI are not subject
to an impairment assessment.
2.15.7 Loan stock
Loan stock is initially measured at the fair value of the consideration received, net of any issue costs. It is
subsequently measured at amortised cost using the effective interest rate method, in order to amortise the
difference between the cost at inception and the redemption value, over the period to the earliest date that
the Group has the right to redeem the loan stock.
Interest on loan stock is included in ‘Interest expense’ in the consolidated income statement.
2.15.8 Other financial liabilities
Other financial liabilities include ‘Customer deposits’, ‘Deposits by banks’, ‘Funding from central banks’ and
other financial liabilities.
Financial liabilities are recognised when the Group enters into the contractual provisions of the
arrangements with counterparties, which is generally on trade date, and initially measured at fair value,
which is normally the consideration received, net of directly attributable transaction costs incurred.
Subsequent measurement of deposits by customers, funding from central banks and deposits by banks is at
amortised cost, using the effective interest method.
2.16 Reclassification of financial assets and liabilities
The Group does not reclassify its financial assets subsequent to their initial recognition apart from
exceptional circumstances in which the Group changes its business model for managing financial assets and
acquires, disposes of, or terminates a business line. Reclassification is applied prospectively from the
reclassification date, which is the first day of the first reporting period following the change in business
model that results in the reclassification. Any previously recognised gains, losses or interest are not
restated.
Financial liabilities are never reclassified.
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BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.17 Derecognition of financial assets and financial liabilities
2.17.1 Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial
assets) is derecognised when the contractual rights to the cash flows from the financial asset have expired.
The Group also derecognises the financial asset if it has both transferred the financial asset and the transfer
qualifies for derecognition.
The Group transfers a financial asset if, and only if, either:
The Group transfers its contractual rights to receive cash flows from the financial asset; or
The Group retains the rights to the cash flows, but assumes an obligation to pay the received
cash flows in full without material delay to a third party under a ‘pass-through’ arrangement.
A transfer only qualifies for derecognition if either:
The Group transfers substantially all the risks and rewards of the asset; or
The Group neither transfers nor retains substantially all the risks and rewards of the asset, but it
transfers control of the asset.
2.17.2 Financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or
expired. Modifications to, and exchanges of, financial liabilities are treated as extinguishments and
derecognised, when the revised terms are substantially different to the original term. The difference
between the carrying amount of the original financial liability and the consideration paid is recognised in
profit or loss.
2.18 Forborne and modified loans
The contractual terms of a financial asset may be modified due to various reasons, either due to commercial
renegotiations or due to distressed restructurings with a view to maximise recovery.
In the event that the terms and conditions of a financial asset are renegotiated or otherwise modified, the
Group considers whether the modification results in derecognition of the existing financial asset and the
recognition of a new financial asset. A derecognition of a financial asset (or part of a financial asset) and a
recognition of a new financial asset would occur where there has been a substantial modification on the
revised terms to the original cash flows.
Judgement is required to assess whether a change in the contractual terms is substantial enough to lead to
derecognition. The Group considers a series of factors of both qualitative and quantitative nature when
making such judgements on a modification in the contractual cash flows, including change in the currency,
change in counterparty, introduction of substantially different terms such as addition of equity conversion
features, changes in the legal framework and other.
Where the modification does not result in derecognition, the Group recognises a modification gain or loss,
based on the difference between the modified cash flows discounted at the original EIR and the existing
gross carrying value of the financial asset. The financial asset continues to be subject to the same
assessments for significant increase in credit risk relative to initial recognition and credit-impairment. A
modified financial asset will transfer out of Stage 3 if the conditions that led to it being identified as credit-
impaired, as defined in Note 2.19.2, are no longer present. A modified financial asset will transfer out of
Stage 2 when it no longer meets the criteria for significant increase in credit risk such as it satisfies relative
thresholds, which are based on changes in its lifetime probability of default (PD), days past due are not
considered to be forborne, and other considerations. The financial asset continues to be monitored for
significant increases in credit risk and credit impairment.
Where the modification results in derecognition, the new financial asset is classified at amortised cost or
FVOCI and an assessment is performed on whether it should be classified as Stage 1 or POCI for ECL
measurement. For the purposes of assessing for significant increases in credit risk, the date of initial
recognition for the new financial asset is the date of the modification.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.19 Impairment of financial assets
2.19.1 Overview of ECL principle
The Group uses a forward looking ECL model, requiring judgement, estimates and assumptions in
determining the level of ECLs. ECLs are recorded for all financial assets measured at amortised cost and
FVOCI, lease receivables, loan commitments and financial guarantee contracts. Equity instruments are not
subject to impairment.
At initial recognition, impairment allowance (or provision in the case of commitments and guarantees) is
required for ECL resulting from default events that are possible within the next 12 months (12-month ECL),
unless assets are deemed as POCI. In the event of a significant increase in credit risk since initial
recognition, impairment allowance is required resulting from all possible default events over the expected
life of the financial instrument (lifetime ECL). The Group’s policies for determining if there has been a
significant increase in credit risk are set out in Note 2.19.3.
The Group categorises its financial assets into Stage 1, Stage 2, Stage 3 and POCI for ECL measurement as
described below:
Stage 1: Financial assets which have not had a significant increase in credit risk since initial recognition are
considered to be Stage 1 and 12-month ECL is recognised.
Stage 2: Financial assets that are considered to have experienced a significant increase in credit risk since
initial recognition are considered to be Stage 2 and lifetime ECLs are recognised.
Stage 3: Financial assets which are considered to be credit-impaired (refer to following section of the note
on how the Group defines credit-impaired and default) and lifetime ECLs are recognised.
POCI: These are purchased or originated financial assets that are credit-impaired on initial recognition. POCI
assets include loans purchased or originated at a deep discount that reflects incurred credit losses. Changes
in lifetime ECLs since initial recognition are recognised.
ECL is recognised in profit or loss with a corresponding ECL allowance reported as a decrease in the carrying
value of financial assets measured at amortised cost on the balance sheet. For financial assets measured at
FVOCI the carrying value is not reduced, but the accumulated amount of impairment allowance is
recognised in OCI. For off-balance sheet instruments, accumulated provisions for ECL are reported in
‘Accruals, deferred income, other liabilities and other provisions’, except in the case of loan commitments
where ECL on the loan commitment is recognised together with the loss allowance of the relevant on
balance-sheet exposure, as the Group cannot separately identify the ECL on the loan commitment from
those on the on-balance sheet exposure component. ECL for the period is recognised within the
consolidated income statement in ‘Credit losses to cover credit risk on loans and advances to customers’ for
loans and advances to customers and loan commitments and financial guarantees and in ‘Credit losses of
other financial instruments’ for all other financial instruments.
2.19.2 Credit impaired and definition of default
Loans and advances to customers, loan commitments and financial guarantees
The Group considers loans and advances to customers that meet the non-performing exposure (NPE)
definition as per the European Banking Authority (EBA) standards to be in default and hence Stage 3
(credit-impaired). Therefore such loans have ECL calculated on a lifetime basis and are considered to be in
default for credit risk management purposes.
As per the EBA standards and European Central Bank’s (ECB) Guidance to Banks on Non-Performing Loans
(which was published in March 2017), NPEs are defined as those exposures that satisfy one of the following
conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in full without the realisation of the
collateral, regardless of the existence of any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the Capital Requirement
Regulation (CRR), which would also trigger a default under specific credit adjustment, diminished
financial obligation and obligor bankruptcy.
(iii) Material exposures as set by the Central Bank of Cyprus (CBC), which are more than 90 days past
due.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.19 Impairment of financial assets (continued)
2.19.2 Credit impaired and definition of default (continued)
(iv) Performing forborne exposures under probation for which additional forbearance measures are
extended.
(v) Performing forborne exposures previously classified as NPEs that present more than 30 days past
due within the probation period.
From 1 January 2021 two regulatory guidelines came into force that affect NPE classification and Days-Past-
Due calculation. More specifically, these are the RTS on the Materiality Threshold of Credit Obligations Past-
Due (EBA/RTS/2016/06), and the Guideline on the Application of the Definition of Default under article 178
(EBA/RTS/2016/07).
The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or excesses of an exposure
reach the materiality threshold (rather than as of the first day of presenting any amount of arrears or
excesses). Similarly, the counter will be set to zero when the arrears or excesses drop below the materiality
threshold. Payments towards the exposure that do not reduce the arrears/excesses below the materiality
threshold, will not impact the counter.
For retail debtors, when a specific part of the exposures of a customer that fulfils the NPE criteria set out
above is greater than 20% of the gross carrying amount of all on balance sheet exposures of that customer,
then the total customer exposure is classified as non-performing; otherwise only the specific part of the
exposure is classified as non-performing.
For non-retail debtors, when an exposure fulfils the NPE criteria set out above, then the total customer
exposure is classified as non-performing.
Material arrears/excesses are defined as follows:
Retail exposures: Total arrears/excess amount greater than €100
Exposures other than retail: Total arrears/excess amount greater than €500
and the amount in arrears/excess is at least 1% of the customer's total exposure.
The definitions of credit-impaired and default are aligned so that stage 3 represents all loans which are
considered defaulted or otherwise credit-impaired.
When a financial asset has been identified as credit-impaired, ECLs are measured as the difference between
the asset’s gross carrying amount and the present value of estimated future cash flows discounted at the
instrument’s original effective interest rate.
Exposures are classified as forborne when concessions are made to debtors who are facing or about to face
financial difficulties and cannot meet their contractual obligations.
Non-performing forborne exposures cease to be considered as NPEs and in such case are transferred out of
Stage 3, only when all of the following conditions are met:
i. The extension of forbearance measures does not lead to the recognition of impairment or default.
ii. A period of one year has passed since the latest of the following events:
a. The restructuring date
b. The date the exposure was classified as non-performing
c. The end of the grace period included in the restructuring arrangements.
iii. Following the forbearance measures and according to the post-forbearance conditions, there is no
past due amount or concerns regarding the full repayment of the exposure.
iv. No Unlikely-to-Pay criteria exist for the debtor.
v. The debtor has made post-forbearance payments of a non-insignificant amount of capital (different
capital thresholds exist according to the facility type).
Non-performing non-forborne exposures cease to be considered as NPEs only when all of the following
conditions are met:
i. At least three months have passed since the date that the conditions for which the exposure was
classified as non-performing cease to be met, and within these three months there are no default
triggers, and
ii. During the three month period, the behaviour of the obligor should be taken into account, i.e. there
are no arrears/excesses and instalments are being repaid normally, and
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BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.19 Impairment of financial assets (continued)
2.19.2 Credit impaired and definition of default (continued)
iii. During the three month period, the financial situation of the obligor should be taken into account, i.e.
the financial situation of the obligor has improved, and
iv. During the three month period an Unlikely-to-Pay criteria assessment is carried out and it is
assessed that the obligor can fulfil their obligations without resorting to the liquidation of collateral
and there are no other Unlikely-to-Pay criteria.
When an account exits Stage 3, it is transferred to Stage 2 for a probationary period of 6 months. At the
end of this period, the significant increase in credit risk (SICR) trigger is activated as described in Note
2.19.3 and the loan is either transferred to Stage 1 or remains in Stage 2. The reversal of previous
unrecognised interest on loans and advances to customers that no longer meet Stage 3 criteria is presented
in 'Credit losses to cover credit risk on loans and advances to customers'.
Debt securities, loans and advances to banks and balances with central banks
Debt securities, loans and advances to banks and balances with central banks are considered defaulted and
transferred to Stage 3 if the issuers have failed to pay either interest or principal. Moody’s ratings indicate
these exposures with a grade C which is the lowest Moody’s rating category. In addition, a number of other
criteria are considered such as adverse changes in business, financial and economic conditions as well as
external market indicators (credit spreads, credit default swap (CDS) prices) in determining whether there
has been a significant deterioration in the financial position that could lead to unlikeliness to pay.
2.19.3 Significant increase in credit risk (SICR)
IFRS 9 requires that in the event of a significant increase in credit risk since initial recognition, the
calculation basis of the loss allowance would change from 12 month ECLs to lifetime ECLs.
The assessment of whether credit risk has increased significantly since initial recognition is performed at
each reporting date, by considering the change in the risk of default occurring over the remaining life of the
financial instrument since initial recognition.
Significant credit risk increase for loans and advances to customers
Primarily, the Group uses the lifetime probability of default (PDs) as the quantitative metric in order to
assess transition from Stage 1 to Stage 2 for all portfolios. The Group considers an exposure to have
experienced significant increase in credit risk (SICR) by comparing the PD at the reporting date with the PD
at initial recognition to compute the relative increase in regards to the corresponding threshold. The
threshold has been determined by using statistical analysis on historical information of credit migration
exposures on the basis of days past due, for the different segments. The Group applies the thresholds
presented in the table below to each portfolio/segment, based on the following characteristics: customer
type, product type and rating at origination. The threshold is then assigned to each facility according to the
facility's portfolio/segment.
The SICR trigger is activated based on the comparison of the ratio of current lifetime PD to the remaining
Lifetime PD at origination (PD@O) to the pre-established threshold. If the resulting ratio is higher than the
pre-established threshold then deterioration is assumed to have occurred and the exposure is transferred to
Stage 2. The thresholds calibration is driven by changes in the PD models which are assessed semi-annually
as disclosed in Note 45.5.
The table below summarises the quantitative measure of the SICR trigger which varies depending on the
credit quality at origination as follows, applied on 31 December 2021 and 2020:
Segment
Rating at
origination
PD Deterioration
thresholds applied at
31 December 2021
PD Deterioration
thresholds applied at
31 December 2020
Retail
1-3
4-5
6-7
2 X PD@O
2 X PD@O
2 X PD@O
1-7 X PD@O
1-4 X PD@O
1-4 X PD@O
SME
1-3
4-5
6-7
2 X PD@O
2 X PD@O
2 X PD@O
3 X PD@O
3 X PD@O
3 X PD@O
Corporate 1-7 1-3 X PD@O 1-2 X PD@O
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BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.19 Impairment of financial assets (continued)
2.19.3 Significant increase in credit risk (SICR) (continued)
For exposures which are subject to individual impairment assessment, the following qualitative factors in
addition to the ones incorporated in the PD calculation, are considered:
significant change in collateral value or guarantee or financial support provided by
shareholders/directors,
significant adverse changes in business, financial and/or economic conditions in which the
borrower operates.
From the second quarter of 2021, another qualitative factor that triggers SICR has been introduced, that is
the granting of forbearance measures to performing borrowers. Stage 1 exposures that are classified as
'performing forborne' are automatically transferred to Stage 2. The impact of this new criterion was €224
million of loans and advances to customers to be transferred from Stage 1 to Stage 2 and the respective
impact on the ECL for the year ended 31 December 2021 was an increase in ECL of €973 thousand.
The Group also considers, as a backstop criterion, that a significant increase in the credit risk occurs when
contractual payments are more than 30 days past due (past due materiality is applied). Loans that meet
this condition are classified in Stage 2. The transfer to Stage 2 does not take place in cases where certain
exposures are past due for more than 30 days but certain materiality limits are not met (such as arrears up
to €100 and funded balances up to 1% in the case of retail exposures and arrears up to €500 and funded
balances up to 1% on all exposures other than retail). The materiality levels are set in accordance with the
ECB Regulation (EU) 2018/1845.
The thresholds for movement between Stage 1 and Stage 2 are symmetrical. After a financial asset has
been transferred to Stage 2, if its credit risk is no longer considered to have significantly increased relative
to its initial recognition, the financial asset will move back to Stage 1.
Significant credit risk increase for financial instruments other than loans and advances to customers
Low credit risk simplification is adopted for debt securities, loans and advances to banks and balances with
central banks with external credit ratings that are rated as investment grade. The assessment of low credit
risk is based on both the external credit rating and the internal scoring (which considers latest available
information on the instrument and issuer). The combination of the two provides an adjusted credit rating.
An adjusted credit rating which remains investment grade is considered as having low credit risk.
For debt securities, loans and advances to banks and balances with central banks which are below
investment grade, the low credit risk exemption does not apply and therefore an assessment of significant
credit deterioration takes place, by comparing their credit rating at origination with the credit rating on the
reporting date. Significant deterioration in credit risk is considered to have occurred when the adjusted
rating of the exposures drops to such an extent that the new rating relates to a riskier category (i.e. from a
non-investments grade to speculative and then to highly speculative) or when the PD of the exposure at the
origination date compared to the PD at the reporting date has increased by a level greater than the pre-set
threshold.
2.19.4 Measurement of ECLs
IFRS 9 ECL reflects an unbiased, probability-weighted estimate based on either loss expectations resulting
from default events over a maximum 12-month period from the reporting date or over the remaining life of
a financial instrument. The Group calculates lifetime ECLs and 12-month ECLs either on an individual basis
or a collective basis, depending on the nature of the underlying portfolio of financial instruments.
The Group calculates ECLs based on three-weighted scenarios to measure the expected cash flow shortfalls,
discounted at an approximation to the EIR as calculated at initial recognition. A cash flow shortfall is the
difference between the cash flows that are due in accordance with the contract and the cash flows expected
to be received.
The Group calculates ECL using the following three components:
exposure at default (EAD),
probability of default (PD), and
loss given default (LGD).
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BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.19 Impairment of financial assets (continued)
2.19.4 Measurement of ECLs (continued)
Exposure at default (EAD)
EAD represents the expected exposure in the event of a default during the life of a financial instrument,
considering expected repayments, interest payments and accruals. EAD definition is differentiated for the
following categories: revolving and non-revolving exposures.
For non-revolving exposures the term is based on the contractual term of the exposure and both on-balance
sheet and off-balance sheet exposures are amortised in accordance with the principal contractual payment
schedule of each exposure. In case of revolving exposures, the projected EAD is the carrying value plus the
credit conversion factor applied on the undrawn amount. The credit conversion factor model is derived
based on empirical data from 2014 onwards.
In regards to the credit-impaired exposures, the EAD is equal to the on balance sheet amount as at the
reporting date.
Probability of default (PD)
PD represents the probability an exposure defaults and is calculated based on statistical rating models,
calculated per segment and taking into consideration each individual’s exposure rating as well as forward
looking information based on macroeconomic inputs.
For each exposure, lifetime PD represents the probability of default within the lifetime horizon and is based
on the underlying models of marginal probability of default through the cycle (MPD TTC), MPD individual,
MPD point in time, Marginal Probability of Paid-off (MPP) and the NPE overlay. In particular, the first
element, MPD TTC is constructed per segment, illustrating the probability of default status depending on
number of months since the origination date. The PD for each month since the origination date is calculated
under the condition that exposures survived until the prior month. The MPD individual is allocated to linked
individual exposures through a scaling factor constructed based on the current individual risk assessment,
which is represented by the Group’s PD per rating grade. MPD is adjusted to reflect the current and forward
looking information based on the macroeconomic inputs. The MPP Component is the curve that shows the
probability of full payment of a particular exposure based on specific period in months since the open date
of the exposure. MPP is estimated for each particular segment and depends on the contractual terms of the
exposure. Finally, the NPE overlay is an add-on factor that adjusts the definition of default of the underlying
models, such that it is aligned with the NPE definition. For revolving facilities where there is no contractual
survival maturity, one curve per segment is developed. The combination of these models gives rise to a PD
value for each month for the lifetime of the exposure.
BOC PCL's internal rating process is summarised in Note 45.
Loss given default (LGD)
LGD represents an estimate of the loss if default occurs at a given time. It is usually expressed as a
percentage of the EAD. Two distinct paths are taken into consideration for the LGD parameter. The first one
is that of a cured facility where there is a full recovery thus no losses occur. In the second scenario, the
facility remains non-performing resulting into BOC PCL proceeding with collateral liquidation actions. To this
end, the LGD model considers parameters such as historical loss and/or recovery rates as well as the
collateral value which is discounted to the present value determining the amount of the expected shortfall.
LGD rates are estimated for the Stage 1, Stage 2, Stage 3 and POCI segments of each asset class.
The structure of the LGD model considers the following:
Curing where the probability of cure model was derived based on historical observations.
Non-curing including cash recovery or realisation of collaterals either voluntarily i.e. debt for
asset swap or through forced sale, auctions and foreclosure and receivership.
A model monitoring process is followed for PD, EAD and LGD models, where model outputs are back-tested
against recent data points.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.19 Impairment of financial assets (continued)
2.19.4 Measurement of ECLs (continued)
Individually assessed loans
The individual assessment is performed not only for individually significant assets but also for other
exposures meeting specific criteria determined by Credit Risk Management. A risk based approach is used
on the selection criteria of the individually assessed population such as NPE or forborne exposures above a
certain amount, decrease of a certain percentage on the yearly credit turnover and decrease of a certain
percentage on assigned collaterals. In 2020, in response to the COVID-19 pandemic, the selection criteria
included significant stage 1 exposures within highly impacted sectors by COVID-19 to assess potential
increase in credit risk and significant exposures transitioned to Stage 2 from Stage 1 to assess potential
indications for unlikeness to pay.
The ECL is calculated on an individually assessed basis and all relevant considerations of the expected
future cash flows are taken into account (for example, the business prospects for the customer, the
realisable value of collateral, the Group’s position relative to other claimants, the reliability of customer
information and the likely cost and duration of the work-out process).
Collectively assessed loans
All customer exposures that are not individually assessed are assessed on a collective basis. For the
purposes of calculating ECL, exposures are grouped into granular portfolios/segments with shared risk
characteristics. The granularity is based on different levels of segmentation which, among other factors
include customer type, exposure class and portfolio type. The granularity for the IFRS 9 segments is aligned
with the Internal Rating Based (IRB) segmentation of the CRR.
2.19.5 Scenarios and scenario weights
The Group uses reasonable and supportable information, including forward-looking information, in the
calculation of ECLs. ECLs are the unbiased probability-weighted credit losses determined by evaluating a
range of possible outcomes and considering future economic conditions. ECLs are calculated for three
macroeconomic scenarios, baseline, adverse and favourable and the output is the weighted average ECL
based on the assigned probability of each scenario (Note 45).
Macroeconomic scenarios impact both the probability of default (PD) and the loss given default (LGD).
Specifically, forward looking information is embedded in the PDs based on regression equations derived on
the basis of historical data. Using statistical analysis, the most significant macro-variables have been
selected in order to predict accurately the expected default rates. In regards to the LGD, the forward
looking information is incorporated via the property indices for the relevant categories of properties
(housing, commercial, industrial). In particular, for each collateral a forward looking projection of the
realisable value is calculated before discounting back to reporting date to quantify the expected cash
shortfall.
Each macroeconomic scenario used in the expected credit loss calculation includes a projection of all
relevant macroeconomic variables used in the models for a five year period, subsequently reverting to
projections of long-run growth averages based on estimates of potential growth.
Regarding the scenario weights, these are determined using probability theory and severity analysis.
Historical data for GDP growth (1980-2021) is analysed and a frequency distribution is produced. From that
distribution probabilities are derived for all possible outcomes assuming a normal distribution pattern for
the data. Cyprus’ historical growth data exhibit high volatility and the resulting distribution is positively
skewed. However, the distribution tends to normal as outliers are excluded. Deviations of actual outcomes
from the mean are calculated in terms of standard deviation ratios, and severity is higher at higher
deviation ratios. Probabilities are calculated using confidence intervals. The baseline scenario is defined over
the range of values that correspond to 50% probability of equidistant deviations around the mean of the
historical distribution. The adverse scenario is defined over the range of values to the left of the distribution
that correspond to 25% probability. And the favourable scenario is defined over the range of values to the
right of the distribution that correspond to the remaining 25% probability. These benchmark probability
points (50%, 25% and 25%), are decided using severity analysis which incorporates the average and
standard deviation of the distribution.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.19 Impairment of financial assets (continued)
2.19.5 Scenarios and scenario weights (continued)
The macroeconomic forecasts for the baseline, favourable and adverse scenarios as well as the
corresponding weights, are determined by the Economic Research Department of Bank of Cyprus. This
process utilises a variety of external actual and forecast information (International Monetary Fund (IMF),
European Commission and other). The resulting scenarios and weights are reviewed and proposed by the
CRO and are submitted to the Provisions Committee for its endorsement.
Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the
characteristics of the market at the reporting date. Overlays performed are set out in Note 5.2.
2.19.6 ECL measurement period
The period for which expected credit losses are determined (either for 12-month or lifetime ECL) is based
on the stage classification of the facility and its contractual life. For non-revolving exposures the expected
lifetime is the period from the reporting date to the termination date of the facility. For irrevocable loan
commitments and financial guarantee contracts, the measurement period is determined similar to the
period of the revolving facilities.
For revolving facilities, credit cards and corporate and retail overdrafts BOC PCL has the right to cancel
and/or reduce the facilities with two months’ notice. BOC PCL does not limit its exposure to credit losses to
the contractual notice period, but instead a behavioural maturity model is utilised where each revolving
facility is assigned an expected time period to termination.
2.19.7 Purchased or originated credit impaired financial assets (POCI)
POCI financial assets are recorded at fair value on initial recognition. ECLs are only recognised or released
to the extent that there is a subsequent change in the lifetime expected credit losses. For POCI financial
assets, the Group only recognises the cumulative changes in lifetime ECL since initial recognition in the loss
allowance. POCI remain a separate category until derecognition.
2.20 Write-offs
The Group reduces the gross carrying amount of a financial asset when there is no reasonable expectation
of recovering it. In such case, financial assets are written off either partially or in full. Write off refers to
both contractual and non-contractual write offs. A non-contractual write-off is defined as the accounting
reduction of a debt, without waiving the legal claim against the debtor. BOC PCL continues to seek recovery
of the debt (e.g. restructuring arrangements, debt for assets swaps, full settlement, etc.) and the amount
written off for financial assets that are still subject to enforcement activity.
Indicative conditions for writing off part or the full amount of the exposure include, but are not limited to,
the following list of criteria. The criteria are applicable to both contractual and non-contractual write offs
and are not by default applicable to all cases, as individual assessment and judgement is required in order
to evaluate each case on its own merits.
Cases which are close to realisation of a security or collateral may be deemed necessary to be
considered for write-off. With regards to such financial assets on which the security or collateral has
not yet been realised (but may be close to agreement or other arrangement for realising), BOC PCL
forms a reasonable expectation of future cash flows which would also take into account the
collateral’s realisable value.
When BOC PCL ceases all collection and debt enforcement actions, such remaining debt can be
assessed for write-off. However, debt can be written-off even while collection and enforcement
activities are proceeding.
Debtor status is another indicator for assessment for write-off, for example, the debtor’s insolvency
status, or whether the debtor is deceased or cannot be traced. While such loans may already be
impaired, BOC PCL might be unable to form a reasonable expectation of future cash flows.
Nevertheless, BOC PCL takes all the legally available steps to recover the debt, where appropriate.
Customers with exposures with significant number of days past due, provided that all other efforts
for restructuring are exhausted and the exposure or part of the exposure is deemed as
unrecoverable / uncollectable, are also assessed for write-off.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.20 Write-offs (continued)
Write-offs are subject to the Groups internal governance process for review and approval.
Write-offs and partial write-offs represent derecognition/partial derecognition events. If the amount of
write-off is greater than the amount of accumulated loss allowance, the difference is first treated as an
addition to the allowance that is then applied against the gross carrying amount. Recoveries in part or in
full, of amounts previously written-off are credited to the consolidated income statement in ‘Credit losses to
cover credit risk on loans and advances to customers’.
2.21 Financial guarantees, letters of credit and undrawn loan commitments
The Group issues financial guarantees to its customers, consisting of letters of credit, letters of guarantee
and acceptances. Financial guarantees are initially recognised at fair value being the premium received, and
presented on the consolidated balance sheet within ‘Accruals, deferred income, other liabilities and other
provisions’. Subsequently, the Group’s liability under each guarantee is measured at the higher of: (a) the
amount initially recognised reduced by the cumulative amortised premium which is periodically recognised
in the consolidated income statement in ‘Fee and commission income’ in accordance with the terms of the
guarantee, and (b) the amount of ECL provision.
ECL resulting from financial guarantees is recorded in ‘Credit losses to cover credit risk on loans and
advances to customers’. The balance of the liability for financial guarantees that remains is recognised in
‘Fee and commission income’ in the consolidated income statement when the guarantee is fulfilled,
cancelled or expired.
Undrawn loan commitments and letters of credit are commitments under which, over the duration of the
commitment the Group is required to provide a loan with pre-specified terms to the customer.
Corresponding ECLs are presented within ‘Accruals, deferred income, other liabilities and other provisions’
on the Group’s balance sheet except in the case of loan commitments where ECL on the loan commitment is
recognised together with the loss allowance of the relevant on balance-sheet exposure as the Group cannot
separately identify the ECL on the loan commitment from those on the on-balance sheet exposure
component. ECL relating to loan commitments and letters of credit is recorded in ‘Credit losses to cover
credit risk on loans and advances to customers’ in the consolidated income statement.
When a customer draws on a commitment, the resulting loan is presented within (i) financial assets at fair
value held for trading, consistent with the associated derivative loan commitment, (ii) financial assets at fair
value not held for trading, following loan commitments designated at FVPL or (iii) loans and advances to
customers, when the associated loan commitment is not fair valued through profit or loss.
2.22 Offsetting financial instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance
sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an
intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events and must be enforceable in the normal course of
business and in the event of default, insolvency or bankruptcy of either party.
2.23 Hedge accounting
The Group elected, as a policy choice permitted by IFRS 9, to continue to apply hedge accounting in
accordance with IAS 39. The Group implements the amended IFRS 7 hedge disclosure requirements.
The Group uses derivative financial instruments to hedge exposures to interest rate and foreign exchange
risks and in the case of the hedge of net investments, the Group uses also non-derivative financial liabilities.
The Group applies hedge accounting for transactions which meet the specified criteria.
At inception of the hedging relationship, the Group formally documents the relationship between the hedged
item and the hedging instrument, including the nature of the risk and the objective and strategy for
undertaking the hedge. The method that will be used to assess the effectiveness, both at the inception and
at ongoing basis, of the hedging relationship also forms part of the Group’s documentation.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.23 Hedge accounting (continued)
At inception of the hedging relationship and at each hedge effectiveness assessment date, a formal
assessment is undertaken to ensure that the hedging relationship is highly effective regarding the offsetting
of the changes in fair value or the cash flows attributable to the hedged risk. A hedge is regarded as highly
effective if the changes in fair value or cash flows attributable to the hedged risk of the hedging instrument
and the hedged item during the period for which the hedge is designated, are expected to offset in a range
of 80% to 125%. In the case of cash flow hedges where the hedged item is a forecast transaction, the
Group assesses whether the transaction is highly probable and presents an exposure to variations in cash
flows that could ultimately affect the consolidated income statement.
Disclosures required under the Interest Rate Benchmark Reform are provided in Note 21.
2.23.1 Fair value hedges
In the case of fair value hedges that meet the criteria for hedge accounting, the change in the fair value of a
hedging instrument is recognised in the consolidated income statement in ‘Net gains on financial instrument
transactions and disposal/dissolution of subsidiaries and associates’. The change in the fair value of the
hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and
is also recognised in the consolidated income statement in ‘Net gains on financial instrument transactions
and disposal/dissolution of subsidiaries and associates’.
If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets
the criteria for hedge accounting, the hedging relationship is discontinued prospectively. For hedged items
recorded at amortised cost, the difference between the carrying value of the hedged item on termination
and the face value is amortised to the consolidated income statement, over the remaining term of the
original hedge. If the hedged item is derecognised, the unamortised fair value adjustment is recognised
immediately in the consolidated income statement.
2.23.2 Cash flow hedges
In the case of cash flow hedges that meet the criteria for hedge accounting, the effective portion of the gain
or loss on the hedging instrument is recognised directly in other comprehensive income in the ‘Cash flow
hedge reserve’. The ineffective portion of the gain or loss on the hedging instrument is recognised in ‘Net
gains on financial instrument transactions and disposal/dissolution of subsidiaries and associates’ in the
consolidated income statement.
When the hedged cash flows affect the consolidated income statement, the gain or loss previously
recognised in the ‘Cash flow hedge reserve’ is transferred to the consolidated income statement.
2.23.3 Hedges of net investments in foreign operations
Hedges of net investments in overseas branches or subsidiaries are accounted for in a way similar to cash
flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are
recognised in other comprehensive income, while gains or losses relating to the ineffective portion are
recognised in ‘Net foreign exchange gains’ in the consolidated income statement.
On disposal or liquidation of an overseas branch or subsidiary, the cumulative gains or losses recognised in
other comprehensive income are transferred in the consolidated income statement within the 'Net gains on
financial instrument transactions and disposal/dissolution of subsidiaries and associates'.
2.24 Cash and cash equivalents
Cash and cash equivalents for the purposes of the consolidated statement of cash flows consist of cash,
non-obligatory balances with central banks, loans and advances to banks and other securities that are
readily convertible into known amounts of cash and are repayable within three months of the date of their
acquisition.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.25 Insurance business
The Group undertakes both life insurance and non-life insurance business and issues insurance and
investment contracts. An insurance contract is a contract under which one party (the insurer) accepts
significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder
if a specified uncertain future event (the insured event) adversely affects the policyholder.
Once a contract has been classified as an insurance contract, it remains an insurance contract until expiry or
until all the rights and obligations under the contract have been fulfilled, even if the insurance risk has been
significantly reduced during its term.
Investment contracts are those contracts that transfer financial risk. Investment contracts can, however, be
reclassified as insurance contracts after inception if insurance risk becomes significant.
2.25.1 Life insurance business
Premium income from unit-linked insurance contracts is recognised when received and when the units have
been allocated to policyholders. Premium income from non-linked insurance contracts is recognised when
due, in accordance with the terms of the relevant insurance contracts.
Fees and other expenses chargeable to the long-term assurance funds in accordance with the terms of the
relevant insurance contracts, as well as the cost of death cover, are recognised in a manner consistent with
the recognition of the relevant insurance premiums.
Claims are recorded as an expense when they are incurred. Life insurance contract liabilities are determined
on the basis of an actuarial valuation and for unit-linked insurance contracts they include the fair value of
units allocated to policyholders on a contract by contract basis.
2.25.2 Life insurance in-force business
The Group recognises as an intangible asset the value of in-force business in respect of life insurance
contracts. The asset represents the present value of the shareholders’ interest in the profits expected to
emerge from those contracts written at the reporting date, using appropriate economic and actuarial
assumptions, similar to the calculation of the respective life insurance contract liabilities. The change in the
present value is determined on a post-tax basis. For presentation purposes, the change in value is grossed
up at the underlying rate of tax.
2.25.3 Non-life insurance business
Premiums are recognised in the consolidated income statement in the period in which insurance cover is
provided. Unearned premiums relating to the period of risk after the reporting date are deferred to be
earned in subsequent reporting periods.
An increase in liabilities arising from claims is made for the estimated cost of claims notified but not settled
and claims incurred but not notified at the reporting date. The increase in liabilities for the cost of claims
notified but not settled is made on a case by case basis after taking into consideration all known facts, the
cost of claims that have recently been settled and assumptions regarding the future development of
outstanding cases. Similar statistical techniques are used to determine the increase in liabilities for claims
incurred but not notified at the reporting date.
2.25.4 Investment contracts
Income from investment contracts is recognised when received and when the units have been allocated to
policyholders.
2.25.5 Liability adequacy test
At each reporting date, liability adequacy tests are performed to ensure the adequacy of insurance contract
liabilities. In performing these tests, current best estimates of discounted future contractual cash flows and
claims, expenses and investment returns are used. Any deficiency is charged to the consolidated income
statement.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.26 Repurchase and reverse repurchase agreements
Securities sold under agreements to repurchase (repos) at a specific future date are not derecognised from
the consolidated balance sheet. The corresponding cash received, including accrued interest, is recognised
on the consolidated balance sheet as ‘Repurchase agreements’, reflecting its economic substance as a loan
to the Group. The difference between the sale price and repurchase price is treated as interest expense and
is accrued over the life of the agreement using the effective interest rate method. The investments pledged
as security for the repurchase agreements can be sold or repledged by the counterparty. When the
counterparty has the right to sell or repledge the securities, the Group reclassifies those securities in its
consolidated balance sheet to ‘Investments pledged as collateral’.
Securities purchased under agreements to resell (reverse repos) at a specific future date, are recorded as
reverse repo transactions. The difference between the purchase and the resale price is treated as interest
income and is accrued over the life of the agreement using the effective interest rate method.
2.27 Leases - The Group as lessee
The Group recognises right of use assets (RoU assets) and lease liabilities for contracts that convey the
right to control the use of an identified asset for a period of time in exchange for consideration.
The Group has the right to direct the use of an identified asset throughout the period of use when it has the
right to direct how and for what purpose the asset is used and has the right to change the purpose,
throughout the period of use (i.e. the decision-making rights that most significantly affect the economic
benefits that can be derived from the use of the underlying asset). Essentially, this right permits the Group
to change its decisions throughout the contract term without approval from the lessor.
The lease liabilities are initially measured at the present value of the future lease payments, discounted at
the lessee’s incremental borrowing rate (IBR) given that the interest rate implicit in the lease cannot be
readily determined. Subsequently, the lease liability is adjusted for interest and lease payments, as well as
the impact of lease modifications. Interest is computed by unwinding the present value of the lease liability
and charged to the consolidated income statement within 'Interest expense'.
RoU assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted
for any remeasurement of lease liabilities. The cost of the RoU asset comprises the amount of the initial
measurement of the lease liability, initial direct costs and the provision for restoration costs, adjusted for
any related prepaid or accrued lease payments previously recognised. Depreciation is computed on a
straight line basis up to the end of the lease term, and recognised in the consolidated income statement
within 'Other operating expenses'. RoU assets are subject to impairment under IAS 36.
The Group elected to use the recognition exemption for lease contracts that, at the commencement date,
have a lease term of 12 months or less and do not contain a purchase option (‘short term leases’), and
lease contracts for which the underlying asset is of low value (‘low value assets’). Payments associated with
short term leases and leases of low value assets are recognised on a straight line basis as an expense in the
consolidated income statement.
Leases are monitored for significant changes that could trigger a change in the lease term and at the end of
each reporting period the impact on the lease liability and the RoU asset is reassessed. Lease liability is
remeasured if there is a change in future lease payments, a change in the lease term, or as appropriate, a
change in the assessment of whether an extension option is reasonably certain to be exercised or a
termination option is reasonably certain not to be exercised. When the lease liability is remeasured, a
corresponding adjustment is made to the RoU asset and/or profit or loss, as appropriate.
The lease term is calculated as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease (if reasonably certain to be exercised), or any periods covered by an option to
terminate the lease (if reasonably certain not to be exercised). The assessment of whether the Group is
reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of
lease liabilities and RoU assets recognised. Judgement is used in calculating the lease term, as further
disclosed in Note 5.13.
Lease payments generally include fixed payments and variable payments that depend on an index (such as
an inflation index).
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.27 Leases - The Group as lessee (continued)
Variable lease payments that are determined by reference to an index or a rate are taken into account in
the lease liability only when there is a change in the cash flows resulting from a change in the reference
index or rate. In cases where the lease contract includes a term relating to increase in the lease payment
based on variable lease payments, this increase is applied on the lease when it becomes effective (when the
actual cash outflow occurs). The assessment is performed at each reporting date. In cases where the lease
contract includes a term with fixed increments in the lease payments, the increase is accounted for in the
initial recognition of lease liability.
When a lease contains an extension or termination option that the Group considers reasonably certain to be
exercised, the expected lease payments or costs of termination are included within the lease payments in
determining the lease liability.
2.28 Property and equipment
Owner-occupied property is property held by the Group for use in the supply of services or for
administrative purposes. Investment property is property held by the Group to earn rentals and/or for
capital appreciation, as further disclosed in Note 2.29. If a property of the Group includes a portion that is
owner-occupied and another portion that is held to earn rentals or for capital appreciation, the classification
is based on whether or not these portions can be sold separately. Otherwise, the whole property is
classified as owner-occupied property unless the owner-occupied portion is insignificant. The classification
of property is reviewed on a regular basis to account for major changes in its use.
Owner-occupied property is initially measured at cost and subsequently measured at fair value less
accumulated depreciation and impairment. Valuations are carried out periodically between 3 to 5 years,
(but more frequent revaluations may be performed where there are significant and volatile movement in
values), by independent, qualified valuers or by the internal qualified valuers of the Group applying a
valuation model recommended by the internationally accepted valuation standards. Depreciation is
calculated on the revalued amount less the estimated residual value of each building on a straight line basis
over its estimated useful life. Gain or losses from revaluations are recognised in other comprehensive
income in ‘Property revaluation reserve'.
The ‘Property revaluation reserve’ includes revaluation of property initially used by the Group for its
operations which was subsequently transferred to ‘Investment properties’ and/or 'Stock of property'. Useful
life is in the range of 30 to 67 years. Freehold land is not depreciated. On disposal of freehold land and
buildings, the relevant revaluation reserve balance is transferred to ‘Retained earnings’.
The cost of adapting/improving leasehold property is amortised over 5 years.
Equipment is measured at cost less accumulated depreciation. Depreciation of equipment is calculated on a
straight line basis over its estimated useful life of 5 to 10 years.
RoU assets recognised as property are measured at cost less accumulated depreciation and adjusted for
certain re-measurements of lease liabilities. Depreciation of the recognised RoU assets is calculated on a
straight line basis over the lease term, as further disclosed in Note 2.27.
At the reporting date, when events or changes in circumstances indicate that the carrying value may not be
recovered, property and equipment is assessed for impairment. Where the recoverable amount is less than
the carrying amount, property and equipment is written down to its recoverable amount.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.29 Investment properties
Investment properties comprise land and buildings that are not occupied for use by, or in the operations of
the Group, nor for sale in the ordinary course of business, but are held primarily to earn rental income
and/or for capital appreciation. Additionally, leased properties which are acquired in exchange for debt and
are leased out under operating leases are also usually classified as 'Investment properties'.
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial
recognition, investment properties are measured at fair value as at the reporting date. Gains or losses
arising from changes in the fair values of investment properties are included in ‘Net gains/(losses) from
revaluation and disposal of investment properties’ in the consolidated income statement. Valuations are
carried out by independent, qualified valuers or by the Group's internal qualified valuers.
Transfers are made to (or from) investment property only when there is a change in use. For a transfer
from owner-occupied property to investment property, the Group accounts for such property in accordance
with the policy described in Note 2.28 ‘Property and equipment’ up to the date of change in use. For a
transfer from investment property to stock of property, the property’s deemed cost for subsequent
accounting is its fair value at the date of change in use.
2.30 Stock of property
The Group in its normal course of business acquires properties in exchange of debt, which are held either
directly by BOC PCL or by entities set up and controlled by the Group for the sole purpose of managing
these properties with an intention to be disposed of. These properties are recognised in the Consolidated
Financial Statements as ‘Stock of property’, reflecting the substance of these transactions.
Stock of property is initially measured at cost and subsequently measured at the lower of cost and net
realisable value. Net realisable value is the estimated selling price, less the estimated costs necessary to
make the sale.
If net realisable value is below the cost of the stock of property, impairment is recognised in ‘Impairment of
non-financial assets’ in the consolidated income statement.
2.31 Non-current assets held for sale and discontinued operations
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be
recovered principally through a sale or distribution rather than through continuing use.
The condition for such classification is regarded as met only when the sale is highly probable and the asset
or disposal group is available for immediate sale in its present condition. Actions required to complete the
sale should indicate that it is unlikely that significant changes to the plan will be made or that the plan will
be withdrawn. 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.
Such non-current assets and disposal groups held for sale are measured at the lower of their carrying
amount and fair value less costs to sell, except for those assets and liabilities that are not within the scope
of the measurement requirements of IFRS 5 ‘Non-current assets held for sale and discontinued operations’
such as deferred taxes, financial instruments, investment properties measured at fair value, insurance
contracts and assets and liabilities arising from employee benefits. These are measured in accordance with
the Group’s relevant accounting policies described elsewhere in this note.
Immediately before the initial classification as held for sale, the carrying amount of the asset (or assets and
liabilities in the disposal group) is measured in accordance with applicable IFRSs. On subsequent
remeasurement of a disposal group, the carrying amounts of the assets and liabilities noted above that are
not within the scope of the measurement requirements of IFRS 5 are remeasured in accordance with
applicable IFRSs before the fair value less costs to sell of the disposal group is determined.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.31 Non-current assets held for sale and discontinued operations (continued)
If fair value less costs to sell of the disposal group is below the aggregate carrying amount of all of the
assets and liabilities included in the disposal group, the disposal group is written down. The impairment loss
is recognised in the consolidated income statement for the year. Where an impairment loss is recognised
(or reversed) for a disposal group, it is allocated between the scoped-in non–current assets using the order
of allocation set out in IAS 36 and no element of the adjustment is allocated to the other assets and
liabilities of the disposal group. In case that the carrying amount of scoped-in non-current assets is less
than the amount by which a disposal group’s carrying amount exceeds its fair value less costs to sell, the
excess is not recognised.
Property and equipment and intangible assets are not depreciated or amortised once classified as held for
sale.
Assets and liabilities classified as held for sale are presented separately in the consolidated balance sheet.
A disposal group qualifies as a discontinued operation 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 a single co-ordinated plan to dispose of a separate major line
of business or geographical area of operations, or c) is a subsidiary acquired exclusively with a view to
resale. Net profit/loss 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 gain or loss on
measurement to fair value less cost to sell of a disposal group constituting a discontinued operation) and
discontinued operations tax expense.
Discontinued operations are excluded from the results of continuing operations and are presented as a
single amount, as profit or loss after tax from discontinued operations in the consolidated income
statement.
2.32 Intangible assets
Intangible assets include among others computer software (including internally developed software) and
acquired insurance portfolio customer lists. Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at
the date of acquisition. The Group recognises an intangible asset that arises from development or the
development phase of an internal project if, and only if, it can demonstrate all of the following:
1) The technical feasibility of completing the intangible asset so that it will be available for use or sale;
2) Its intention to complete the intangible asset and use or sell it;
3) Its ability to use or sell the intangible asset;
4) How the intangible asset will generate probable future economic benefits;
5) The availability of adequate technical, financial and other resources to complete the development and
to use or sell the intangible asset; and
6) Its ability to reliably measure the expenditure attributable to the intangible asset during its
development.
The expenditures arising on research or the research phase of an internal project are expensed as incurred.
Research expenditure cannot be subsequently capitalised.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any
accumulated impairment losses.
Amortisation is calculated on a straight line basis over the estimated useful life of the assets which is 3 to 8
years for computer software, including computer software development costs. For the accounting policy of
in-force life insurance business, refer to Note 2.25.2.
Intangible assets are reviewed for impairment when events relating to changes in circumstances indicate
that the carrying value may not be recoverable. If the carrying amount exceeds the recoverable amount
then the intangible assets are written down to their recoverable amount.
2.33 Share capital
Ordinary shares are classified as equity.
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Notes to the Consolidated Financial Statements
2. Summary of significant accounting policies (continued)
2.33 Share capital (continued)
Any difference between the issue price of share capital and the nominal value is recognised as share
premium. The costs incurred attributable to the issue of share capital are deducted from equity.
2.34 Other equity instruments
An instrument is an equity instrument if the instrument includes no contractual obligation to deliver cash or
another financial asset to another entity, or to exchange financial assets or financial liabilities with another
entity under conditions that are potentially unfavourable to the issuer.
Other equity instruments are recorded at their residual amount and are not subject to any re-measurement
after initial recognition. The cost incurred attributable to the issue of other equity instruments is deducted
from retained earnings. Any subsequent write-down or write-up results to a credit or debit in retained
earnings respectively. Coupon payments are recorded directly in retained earnings.
2.35 Treasury shares
Own equity instruments which are acquired by the Company or by any of its subsidiaries are presented as
treasury shares at their acquisition cost. Treasury shares are deducted from equity until they are cancelled
or reissued. No gain or loss is recognised in the consolidated income statement on the purchase, sale, issue
or cancellation of the Company’s own equity shares.
2.36 Provisions for pending litigation, claims, regulatory and other matters
Provisions for pending litigation, claims, regulatory and other matters against the Group are made when:
(a) there is a present obligation (legal or constructive) arising from past events, (b) the settlement of the
obligation is expected to result in an outflow of resources embodying economic benefits, and (c) a reliable
estimate of the amount of the obligation can be made.
2.37 Comparative information
Comparative information was restated in relation to the presentation of Credit risk concentration of loans
and advances to customers as detailed in Notes 45.2, 45.3, 45.4, 45.7 and 45.11. In addition, comparative
information was restated in relation to the presentation of segmental analysis as detailed in Note 6.
3. Going concern
The Directors have made an assessment of the Group’s ability to continue as a going concern for a period of
12 months from the date of approval of these Consolidated Financial Statements.
The Directors have concluded that there are no material uncertainties which would cast significant doubt
over the ability of the Group, the Company and BOC PCL to continue to operate as a going concern for a
period of 12 months from the date of approval of these Consolidated Financial Statements.
In making this assessment, the Directors have considered a wide range of information relating to present
and future conditions, including projections of profitability, cash flows, capital requirements and capital
resources, taking also into consideration, the Group’s Financial Plan approved by the Board in February
2022 (the ‘Plan’) and the operating environment (as set out in Section ‘Operating Environment’ in the
Directors' Report). The Group has sensitised its projection to cater for downside scenarios and has used
conservative economic inputs to develop its medium term strategy. The Group is working towards
materialising its Plan.
Capital
The Directors and Management have considered the Group’s forecasted capital position, including the
potential impact of a deterioration in economic conditions. The Group has developed capital projections
under base and adverse scenario and the Directors believe that the Group has sufficient capital to meet its
regulatory capital requirements throughout the period of assessment.
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Notes to the Consolidated Financial Statements
3. Going concern (continued)
Funding and liquidity
The Directors and Management have considered the Group’s funding and liquidity position and are satisfied
that the Group has sufficient funding and liquidity throughout the period of assessment. The Group
continues to hold a significant liquidity buffer at 31 December 2021 that can be easily and readily monetised
in a period of stress.
4. Economic and geopolitical environment
As a result of the pandemic, the market environment within which the Group operates has continued to
evolve in 2021. Throughout 2021, measures adopted to contain the COVID-19 virus, included certain
business closures, social restrictions and social distancing, which have had an impact on the current
financial and operational performance of the Group. However, the economic performance and outlook has
continued to improve with the lifting of economic restrictions in 2021. The low interest rate environment
continues to impact the profitability of the overall financial sector in which the Group operates having a
resultant impact on the Group’s net interest income. The Group assessed the financial impacts of the
economic environment through the Group’s planning process and believes it is reasonably well positioned to
withstand any volatility from a resurgence of the virus or other economic events, particularly given the
Group’s continued management of its financial position through NPE reduction and capital management.
The potential impacts from the Russian invasion of Ukraine remain uncertain, including but not limited to,
on economic conditions, asset valuations, interest rate expectations and exchange rates. The extent of
these impacts on the Group is unclear at this stage. Although the Group’s direct exposure to the region is
limited, the invasion of Russia to Ukraine could result in prolonged/elevated geopolitical instability, trade
restrictions, disruptions to global supply chains, increases in energy prices with flow-on global inflationary
impacts, and a potential adverse impact on markets and a downturn in the global economy. Beginning in
February 2022, the EU, UK and the U.S., in a coordinated effort joined by several other countries, imposed
a variety of new sanctions with respect to certain regions of Ukraine, Russia and various Russia-related
parties as a result of these escalating tensions and Russia’s invasion of Ukraine, which may have an impact
on the Group’s business and operations as well as impact the regional and global economic environment.
Secondary effects of these developments, for example the cost and sufficiency of energy supplies in Europe
and the economic impact of various scenarios, are hard to predict and could be significant.
5. Significant and other judgements, estimates and assumptions
The preparation of the Consolidated Financial Statements requires the Company’s Board of Directors and
management to make judgements, estimates and assumptions that can have a material impact on the
amounts recognised in the Consolidated Financial Statements and the accompanying disclosures, as well as
the disclosures of contingent liabilities. Uncertainty about these assumptions and estimates could result in
outcomes that require a material adjustment to the carrying amount of assets or liabilities affecting future
periods.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting
date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities are described below. The Group based its assumptions and estimates on parameters available
when the Consolidated Financial Statements were prepared. Existing circumstances and assumptions about
future developments may, however, change due to market changes or circumstances beyond the control of
the Group. Such changes are reflected in the assumptions when they occur.
The most significant judgements, estimates and assumptions relate to the classification of financial
instruments and the calculation of expected credit losses (ECL), the estimation of the net realisable value of
stock of property and the provisions for pending litigation, claims, regulatory and other matters, which are
presented in Notes 5.1 to 5.4 below. Other judgements, estimates and assumptions are disclosed further
below in Notes 5.5 to 5.13.
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Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.1 Classification of financial assets
The Group exercises judgement upon determining the classification of its financial assets, which relate to
business models and future cash flows.
Judgement is also required to determine the appropriate level at which the assessment of business models
needs to be performed. In general, the assessment for the classification of financial assets into the business
models is performed at the level of each business line. Further, the Group exercises judgement in
determining the effect of sales of financial instruments on its business model assessment.
The Group also applies judgement upon considering whether contractual features including interest rate
could significantly affect future cash flows. Furthermore, judgement is required when assessing whether
compensation paid or received on early termination of lending arrangements results in cash flows that are
not SPPI.
5.2 Calculation of expected credit losses
The calculation of ECL requires management to apply significant judgement and make estimates and
assumptions, involving significant uncertainty at the time these are made. Changes to these estimates and
assumptions can result in significant changes to the timing and amount of ECL to be recognised. The
Group’s calculations are outputs of models, of underlying assumptions on the choice of variable inputs and
their interdependencies.
It has been the Group’s policy to regularly renew its models in the context of actual loss experience and
adjust when necessary.
Elements of ECL models that are considered accounting judgements and estimates include:
Assessment of significant increase in credit risk (SICR)
IFRS 9 does not include a definition of significant increase in credit risk. The Group assesses whether
significant increase in credit risk has occurred since initial recognition using predominantly quantitative and
in certain cases qualitative information. The determination of the relevant thresholds to determine whether
a significant increase in credit risk has occurred, is based on statistical metrics and could be subject to
management judgement. The relevant thresholds are set, monitored and updated on a yearly basis by the
Risk Management Division and endorsed by the Group Provisions Committee.
Determining the probability of default (PD) at initial recognition requires management estimates in
particular cases. Specifically in the case of exposures existing prior to the adoption of IFRS 9, a
retrospective calculation of the PD is made in order to quantify the risk of each exposure at the time of the
initial recognition. In certain cases estimates about the date of initial recognition might be required.
For the retail portfolio, the Group uses a PD at origination incorporating behavioural information (score
cards) whereas, for the corporate portfolio, the Group uses the internal credit rating information. For
revolving facilities, management estimates are required with respect to the life-time and hence a
behavioural maturity model is utilised assigning an expected maturity based on product and customer
behaviour.
Scenarios and macroeconomic factors
The Group determines the ECL, which is a probability weighted amount, by evaluating a range of possible
outcomes. Management uses forward looking scenarios and assesses the suitability of weights used. These
are based on management’s assumptions taking into account macroeconomic, market and other factors.
Changes in these assumptions and in other external factors could significantly impact ECL. Macroeconomic
inputs and weights per scenario are monitored by the Economic Research Department and are based on
internal model analysis after considering external market data supplemented by expert judgement.
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Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.2 Calculation of expected credit losses (continued)
Economic activity recovered strongly in 2021, driven by domestic demand in the first half of 2021 and by
external demand in the second half of 2021 reflecting a strong recovery in tourist activity in the period.
Government support to businesses and households remained substantial in the year and inflation
accelerated in the second half of 2021. The unemployment rate remained largely unchanged from the
previous year. Over the medium term, prospects remain positive aided also by the Recovery and Resilience
Fund of Next Generation EU. The Next Generation EU is a significant initiative. Its purpose is ultimately
about the future, to help fund the key investments that will be needed for the green and digital transitions,
and so enhance the potential and economic resilience of member states. Structural reform is an integral
part of this process, and ultimately a critical factor that will determine the effectiveness of the investments.
The bulk of the funds will be released in 2022-2024 depending on the strict implementation of reform
priorities agreed with the EU. These include increasing the efficiency of public and local administrations,
improving the government of state-owned enterprises, reducing further the levels of non-performing loans
in the banking sector, improving the efficiency of the judicial system and accelerating anti-corruption
reforms.
There have been distinct improvements in Cyprus’ risk profile, but substantial risks remain in terms of the
domestic operating environment, as well as the external environment on which it depends. Cyprus’ overall
country risk is a combination of sovereign, currency, banking, political and economic structure risk,
including external developments with substantial potential impact on the domestic economy. The large
stock of public debt weighs heavily on Cyprus’ sovereign credit risk. In the banking sector, despite
significant progress since the financial crisis of 2012-2014, risks remain elevated and non-performing loans
were 15.2% of gross loans at the end of October 2021 compared to a Euro area average of just over 2%.
Cyprus has a large and relatively undiversified export base. While the current account deficit will be
narrowing as exports services recover in the medium term, it will remain sizable. Tourism will continue to
be impacted by COVID-19 in the EU. Parliament is fragmented and majorities for passing legislation
including reforms may be difficult to form. The monetary policy of the European Central Bank can change
abruptly if inflation pressures persist. The extent of the crisis in Ukraine can lead in elevated tensions for a
considerable period of time. Given that the banking sector has linkages with business and professional
services with Russia and that Russia has become a major market for Cypriot tourism, adverse events and
developments in the Russian economy may potentially have an impact on the Cyprus economy.
For the ECL, the Group updated its forward looking scenarios, factoring in updated macroeconomic
assumptions and other monetary and fiscal developments at the national and the EU level based on
developments and events as at the reporting date, i.e. 31 December 2021.
The tables below indicate the most significant macroeconomic variables as well as the scenarios used by the
Group as at 31 December 2021 and 2020 respectively. The Group uses three different economic scenarios
in the calculation of default probabilities and provisions. The Group has used the 30-50-20 probability
structure for the adverse, base and favourable scenarios respectively compared to the 25-50-25 structure
derived using the method described in Note 2.19.5. This reflects the management's view of specific
characteristics of the Cyprus economy that render it more vulnerable to external and internal shocks.
Despite the more positive outlook for 2022 and the continued recovery, given the added uncertainties and
downside risks in the global economy as well as the local economy, especially in view of inflation
uncertainties and added geopolitical risks, management decided to maintain an elevated weight on the
adverse scenario.
The economy continues to face financial and macroeconomic risks, including a high public debt ratio and a
relatively high level of NPEs that together maintain elevated vulnerabilities and limit the policy reaction
space thus sustaining conditions, which can lead to a deeper recession in response to shocks than under
normal times.
In the banking sector, non-performing loans dropped sharply from about 48% of gross loans at the end of
2014 to 15.2% of gross loans at the end of October 2021 but compare unfavourably to a Euro area average
of just over 2%. However, adverse developments such as real estate sector shocks that can emanate for
instance from a prolonged COVID-19 pandemic, or post COVID-19 permanent shifts in travel and hospitality
preferences, can lead to a rapid increase in the creation of non-performing loans and weaken bank balance
sheets.
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Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.2 Calculation of expected credit losses (continued)
These factors and the overall risk profile discussed in the previous section, including economic structure risk
given a very large external sector and high concentration to geographical areas render the economy more
susceptible to external shocks and weaken its resilience. This may, in management's view, not be fully
captured in the weights as calculated using the method described in Note 2.19.5. Hence management has
decided to keep the weight of the adverse scenario to 30%, and correspondingly keep a reduced weight of
the favourable scenario to 20%.
31 December 2021
Year Scenario
Weight
%
Real GDP
(% change)
Unemployment
rate (% of
labour force)
Consumer
Price Index
(average
% change)
RICS House
Price Index
(average
% change)
2022 Adverse 30.0 -0.4 7.6 0.5 -3.7
Baseline 50.0 4.3 6.5 2.2 2.6
Favourable 20.0 4.5 5.8 3.0 3.1
2023 Adverse 30.0 0.1 7.7 1.6 -1.0
Baseline 50.0 3.3 6.4 1.6 3.3
Favourable 20.0 3.3 5.8 1.6 4.0
2024 Adverse 30.0 1.8 7.6 1.8 3.0
Baseline 50.0 3.0 6.2 1.8 3.1
Favourable 20.0 3.2 5.7 1.8 3.2
2025 Adverse 30.0 2.4 7.2 1.9 3.3
Baseline 50.0 2.9 5.8 1.9 3.0
Favourable 20.0 3.0 5.5 1.9 2.9
2026 Adverse 30.0 3.0 6.7 1.8 3.2
Baseline 50.0 2.7 5.3 1.8 2.7
Favourable 20.0 2.6 5.1 1.8 3.1
31 December 2020
Year Scenario
Weight
%
Real GDP
(% change)
Unemployment
rate (% of
labour force)
Consumer
Price Index
(average
% change)
RICS House
Price Index
(average
% change)
2021 Adverse 30.0 -0.6 9.6 -2.2 -4.0
Baseline 50.0 4.0 7.4 -0.8 -2.3
Favourable 20.0 4.8 6.4 -0.1 -0.8
2022 Adverse 30.0 4.3 8.7 -1.1 -2.3
Baseline 50.0 3.9 6.2 0.8 0.3
Favourable 20.0 4.4 5.8 1.4 2.4
2023 Adverse 30.0 4.0 7.4 0.3 2.5
Baseline 50.0 3.4 5.7 1.4 4.1
Favourable 20.0 3.5 5.6 1.4 5.2
2024 Adverse 30.0 3.5 6.7 0.8 5.3
Baseline 50.0 3.0 5.7 1.6 5.3
Favourable 20.0 3.0 5.6 1.6 5.9
2025 Adverse 30.0 2.7 6.6 1.5 5.8
Baseline 50.0 2.7 5.7 1.9 5.5
Favourable 20.0 2.7 5.5 2.0 6.1
The adverse scenarios may outpace the base and favourable scenarios after the initial shock has been
adjusted to and the economy starts to expand from a lower base. Thus, in the adverse scenario GDP will
follow a growth trajectory that will ultimately equal and surpass the baseline before converging. Property
prices are determined by multiple factors with GDP growth featuring prominently. However, the relationship
between GDP growth and property prices entails a lag. Thus, property prices will initially adjust less steeply
than GDP, and will start to accelerate after the recovery in GDP has been entrenched. After this point,
property prices will accelerate and will match and surpass the pace in the baseline scenario, before finally
converging.
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Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.2 Calculation of expected credit losses (continued)
The baseline scenario was updated for 31 December 2021 reporting, considering available information and
relevant developments until then, and is described next. Economic activity recovered strongly in 2021 aided
by continuing fiscal stimulus supporting jobs and businesses, and by aggressive monetary expansion from
the ECB. Real GDP increased by 5.5% in 2021 and is projected to rise by 4.1% in 2022 according to the
winter forecasts of the European Commission. Consumer price inflation averaged 2.4% in 2021 but
accelerated sharply in the second half of the year. Inflation is expected to remain elevated in the first half of
2022 and start to ease from the second half of 2022. The unemployment rate will continue to drop steadily
in the medium term. Property prices will continue to rise modestly in 2022 as domestic demand for housing
picks up.
The adverse scenario is consistent with assumptions for the COVID-19 related disruptions under the
baseline scenario but to a higher degree of severity, and with negative influences from new sanctions
against Russia over developments in the Ukraine crisis as estimated at the time of the projections for 31
December 2021. The Cypriot economy relies on services, particularly on tourism. This makes the economy
more exposed than other countries to travel restrictions and quarantine measures that have been adopted
in Cyprus and abroad due to COVID-19. Developments with Russia over the Ukrainian crisis and subsequent
sanctions, lead to negative implications for tourism travel, investment flows and energy prices. The hit to
the Cyprus economy from falling external demand for travel and tourism services and the knock-on effects
to related sectors will be significantly more severe than under the baseline scenario. Real GDP is expected
to contract mildly in 2022, under the adverse scenario, by 0.4%. Economic recovery will remain weak in the
medium term. In the labour market the unemployment rate will remain stuck near the 2021 levels and even
rise modestly in the medium term before dropping again. Property prices will be affected more steeply and
drop by about 3.7% in 2022 and by 1% in 2023 before recovering from 2024 onwards.
Since 1 January 2018, the Group has reassessed the key economic variables used in the ECL models
consistent with the implementation of IFRS 9. The Group uses actual values for the input variables. These
values are sourced from the Cyprus Statistical Service, the Eurostat, the Central Bank of Cyprus for the
residential property price index, and the European Central Bank for interest rates. Interest rates are also
sourced from Bloomberg. In the case of property prices the Group additionally uses data from the Royal
Institute of Chartered Surveyors. For the forward reference period, the Group uses the forecast values for
the same variables, as prepared by the Bank’s Economic Research Department. The results of the internal
forecast exercises are consistent with publicly available forecasts from official sources including the
European Commission, the International Monetary Fund, the European Central Bank and the Ministry of
Finance of the Republic of Cyprus.
Qualitative adjustments or overlays are occasionally made when inputs calculated do not capture all the
characteristics of the market. These are reviewed and adjusted, if considered necessary, by the Risk
Management Division and endorsed by the Group Provisions Committee. Qualitative adjustments or
overlays were applied to the positive future property value growth to restrict the level of future property
price growth to 0% for all scenarios for loans and advances to customers which are secured by property
collaterals.
The RICS indices, which are considered for the purposes of determining the real estate collateral value on
realisation date have been used as the basis to estimate updated market values of properties supplemented
by management judgement where necessary given the difficulty in differentiating between short term
impacts and long term structural changes and the shortage of market evidence for comparison purposes
and are capped to 0% in case of any future projected increase, whereas any future projected decrease is
taken into account.
For Stage 3 customers, the calculation of individually assessed provisions is the weighted average of three
scenarios: base, adverse and favourable. The base scenario focuses on the following variables, which are
based on the specific facts and circumstances of each customer: the operational cash flows, the timing of
recovery of collaterals and the haircuts from the realisation of collateral. The base scenario is used to derive
additional either more favourable or more adverse scenarios. Under the adverse scenario operational cash
flows are decreased by 50%, applied haircuts on real estate collateral are increased by 50% and the timing
of recovery of collaterals is increased by 1 year with reference to the baseline scenario, whereas under the
favourable scenario applied haircuts are decreased by 5%, with no change in the recovery period with
reference to the baseline scenario. Assumptions used in estimating expected future cash flows (including
cash flows that may result from the realisation of collateral) reflect current and expected future economic
conditions and are generally consistent with those used in the Stage 3 collectively assessed exposures.
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Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.2 Calculation of expected credit losses (continued)
For collectively assessed customers the calculation is also the weighted average of three scenarios: base,
adverse and favourable.
Assessment of loss given default (LGD)
A factor for the estimation of loss given default (LGD) is the timing and net recoverable amount from
repossession or realisation of collaterals which mainly comprise real estate assets.
Assumptions have been made about the future changes in property values, as well as the timing for the
realisation of collateral, taxes and expenses on the repossession and subsequent sale of the collateral as
well as any other applicable haircuts. Indexation has been used as the basis to estimate updated market
values of properties supplemented by management judgement where necessary given the difficulty in
differentiating between short term impacts and long term structural changes and the shortage of market
evidence for comparison purposes. Assumptions were made on the basis of a macroeconomic scenario for
future changes in property prices, and these are capped to zero for all scenarios, in case of any future
projected increase, whereas any future projected decrease is taken into consideration.
At 31 December 2021 the weighted average haircut (including liquidity haircut and selling expenses) used in
the collectively assessed provisions calculation for loans and advances to customers is approximately 32%
under the baseline scenario (2020: approximately 32%) excluding those classified as held for sale.
The timing of recovery from real estate collaterals used in the collectively assessed provisions calculation for
loans and advances to customers has been estimated to be on average seven years under the baseline
scenario (2020: average of seven years), excluding those classified as held for sale.
For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the
haircuts used are based on the specific facts and circumstances of each case. For specific cases judgement
may also be exercised over staging during the individual assessment including cases where no specific
model has been developed.
The above assumptions are also influenced by the ongoing regulatory dialogue the Group maintains with its
lead regulator, the ECB, and other regulatory guidance and interpretations issued by various regulatory and
industry bodies such as the ECB and the EBA, which provide guidance and expectations as to relevant
definitions and the treatment/classification of certain parameters/assumptions used in the estimation of
provisions.
Any changes in these assumptions or a variance between assumptions made and actual results could result
in significant changes in the amount of required credit losses of loans and advances to customers.
Expected lifetime of revolving facilities
The expected lifetime of revolving facilities is based on a behavioural maturity model for revolving facilities
based on BOC PCL's available historical data, where an expected maturity for each revolving facility based
on the customer's profile is assigned.
The credit conversion factor model for revolving products was calibrated in the fourth quarter of 2021, to
include additional data points covering the period up to moratorium and in order to be aligned with the
behavioural maturity model for revolving facilities. The impact on the ECL for the year ended 31 December
2021 was a release of ECL of €1,790 thousand.
Modelling adjustments
Forward looking models have been developed for ECL parameters PD, EAD, LGD for all portfolios and
segments sharing similar characteristics. Model validation (initial and periodic) is performed by the
independent validation unit within the Risk Management Division and involves assessment of a model under
both quantitative (i.e. stability and performance) and qualitative terms. The frequency and level of rigour of
model validation is commensurate to the overall use, complexity and materiality of the models, (i.e. risk
tiering). In certain cases, judgement is exercised in the form of management overlay by applying
adjustments on the modelled parameters. Governance of these models lies with the Risk Management
Division, where a strong governance process is in place around the determination of the impairment
measurement methodology including inputs, assumptions and overlays. Any management overlays are
prepared by the Risk Management Division, endorsed by the Provisions Committee and approved by the
joint Risk and Audit Committee.
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Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.2 Calculation of expected credit losses (continued)
ECL allowances also include off-balance sheet credit exposures represented by guarantees given and by
irrevocable commitments to disburse funds. Off-balance sheet credit exposures of the individually assessed
assets require assumptions on the probability, timing and amount of cash outflows. For the collectively
assessed off-balance sheet credit exposures, the allowance for provisions is calculated using the Credit
Conversion Factor (CCF) model.
During the third quarter of 2021, cure model recalibration was performed mainly to address the low
default/cure environment observed in the recent period prior to moratorium and investigate the considered
model development period such that is retains the through the cycle nature of the model. The calibration
was performed on the most recent changes in definition of default introduced in January 2021 and had an
ECL impact of €28 million for the year ended 31 December 2021.
Overlays in the context of COVID-19
Following the COVID-19 pandemic, the Group considered the complexities of governmental support
programmes and regulatory guidance on treatment of customer payment breaks by the ECL models. In this
context, management has considered the data and measurement limitations arising from the extraordinary
impact of COVID-19 and addressed them through management overlays in relation to the significant credit
risk deterioration, behavioural ratings and PD. The majority of COVID-19 related management overlays
applied in 2020 and up to the first six months of 2021 were removed in the third quarter of 2021 following
the availability of recent financial information (such as financial statements) and continuing signs of
recovery in 2021 (such as the repaying percentage of moratorium customers nine months after the end of
moratorium).
SICR adjustment
Following an assessment performed for SICR for customers that had taken up the moratorium in 2020, a
management overlay was applied, in order to capture any bias introduced in the customer’s credit ratings
by defining collective rules that can assess Stage 1 and Stage 2 misclassified customers, due to skewed
outlook of the idiosyncratic risk. The exercise carried out compared the observed with the expected
score/rating (adjusted for the days past due and arrears elements that did not apply during the moratorium
period so as to assess if any customers exhibit severe deterioration/improvement). Additionally, stricter
customers' credit ratings thresholds have been applied for customers in the hotels and catering industry
sector. A staging overlay was then applied on these customers in order to classify them accordingly to
Stage 2. At 31 December 2021, this overlay continued to apply only for the customers in the hotel and
catering industry. The impact of this overlay resulted in a transfer of loans of €42 million from Stage 1 to
Stage 2 and maintaining the classification of €28 million loans in Stage 2 had an impact on the ECL of €91
thousand and €383 thousand respectively for the year ended 31 December 2021. The removal of this
overlay from the remaining exposures resulted in a transfer of €109 million exposures from Stage 2 to
Stage 1 and an ECL reversal of €0.4 million for the year ended 31 December 2021.
Given the data available since the expiry of the moratorium, any exposures that were assessed as having
experienced a SICR in 2020 and were classified to Stage 2 following overlays performed (other than the
overlay described in the previous paragraph), were allowed to return to Stage 1, if no SICR was identified
by the models. The removal of this overlay led to a transfer back to Stage 1 of €424 million exposures,
resulting in the release of ECL of €2 million for the year ended 31 December 2021.
Additionally, exposures that did not participate in the 2020 moratorium but were identified as having
experienced a SICR during 2020 and therefore transferred to Stage 2 were allowed to migrate back to
Stage 1 if they did not exhibit a SICR as at 30 June 2021. This overlay has been removed and led to a
transfer back to Stage 1 of €186 million exposures, resulting in an ECL release of €1 million for the year
ended 31 December 2021.
Probability of default and behavioural ratings adjustment
A PD overlay maintained from 2020 in order to avoid extreme values in the model predictions whilst
ensuring that the moratorium will not cause a timeline misalignment between the model-projected and
observed 2021 defaults was removed during the third quarter of 2021. This overlay had an isolated ECL
impact of €11 million in 2020 and a corresponding ECL release upon its removal during the year ended 31
December 2021.
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Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.2 Calculation of expected credit losses (continued)
The PD overlay applied in 2020 relating to behavioural ratings, where a prudent logic was applied in order
to prevent any moratorium-biased rating to reflect an improved asset quality, was removed in 2021. This
overlay did not allow any moratorium facilities to have improved ratings when compared to their
corresponding February 2020 rating and resulted in an ECL increase of €5 million during 2020. The overlay
was removed during the first quarter of 2021 and resulted in an ECL release of €5 million for the year ended
31 December 2021.
Portfolio segmentation
The individual assessment is performed not only for individually significant assets but also for other
exposures meeting specific criteria determined by management. The selection criteria for the individually
assessed exposures are based on management judgement and are reviewed on a quarterly basis by the
Risk Management Division and are adjusted or enhanced, if deemed necessary. During 2020, in response to
the COVID-19 pandemic, the selection criteria were expanded to include significant Stage 1 exposures
within highly impacted sectors to assess potential increase in credit risk and significant exposures which
transitioned from Stage 1 to Stage 2 to assess potential indications for unlikeliness to pay. These expanded
selection criteria were also applied in the year ended 31 December 2021.
Further details on impairment allowances and related credit information are set out in Note 45.
5.3 Stock of property - estimation of net realisable value
Stock of property is measured at the lower of cost and net realisable value. The net realisable value is
determined through valuation techniques, requiring significant judgement, which take into account all
available reference points, such as expert valuation reports, current market conditions, the holding period of
the asset, applying an appropriate illiquidity discount where considered necessary, and any other relevant
parameters. Selling expenses are deducted from the realisable value. Depending on the value of the
underlying asset and available market information, the determination of costs to sell may require
professional judgement which involves a high degree of uncertainty due to the relatively low level of market
activity.
More details on the stock of property are presented in Note 27.
5.4 Provisions for pending litigation, claims, regulatory and other matters
The accounting policy for provisions for pending litigation, claims, regulatory and other matters is described
in Note 2.36. Judgement is required in determining whether a present obligation exists and in estimating
the probability, timing and amount of any outflows. Provisions for pending litigation, claims, regulatory and
other matters usually require a higher degree of judgement than other types of provisions. It is expected
that the Group will continue to have a material exposure to litigation and regulatory proceedings and
investigations relating to legacy issues in the medium term. The matters for which the Group determines
that the probability of a future loss is more than remote will change from time to time, as will the matters
as to which a reliable estimate can be made and the possible loss for such matters can be estimated. Actual
results may prove to be significantly higher or lower than the estimated possible loss in those matters,
where an estimate was made. In addition, loss may be incurred in matters with respect to which the Group
believed the probability of loss was remote.
For a detailed description of the nature of uncertainties and assumptions and the effect on the amount and
timing of pending litigation, claims, regulatory and other matters refer to Note 39.
5.5 Tax
The Group, other than in Cyprus, is subject to tax in the countries that it has run-down operations mainly in
Greece, Russia and Romania. Estimates are required in determining the provision for taxes at the reporting
date. The Group recognises income tax liabilities for transactions and assessments whose tax treatment is
uncertain. Where the final tax is different from the amounts initially recognised in the consolidated income
statement, such differences will impact the income 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.
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.5 Tax (continued)
Deferred tax assets
In the absence of a specific accounting standard dedicated to the accounting of the asset that arose
pursuant to amendments in the Income Tax Law effected in March 2019 which provides for the
recoverability of tax assets arising from transfer of tax losses following resolution of a credit institution,
within the framework of 'The Resolution of Credit and Other Institutions', to be guaranteed (Note 17), BOC
PCL had exercised judgement in applying the guidance of IAS 12 in accounting for this asset item as the
most relevant available standard. On the basis of this guidance, BOC PCL had determined that this asset
should be accounted for on the basis of IAS 12 principles relating to deferred tax assets.
For further details on such deferred tax assets refer to Note 17.
5.6 Fair value of investments and derivatives
The best evidence of fair value 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 so the reliability of the fair value measurement is relatively
high.
However, certain financial instruments are valued on the basis of valuation techniques that feature one or
more significant inputs that are not observable. Valuation techniques that rely on non-observable inputs
require a higher level of management judgement to calculate a fair value than those based wholly on
observable inputs.
Valuation techniques used to calculate fair values include comparisons with similar financial instruments for
which market observable prices exist, discounted cash flow analysis and other valuation techniques
commonly used by market participants. Valuation techniques incorporate assumptions that other market
participants would use in their valuations, including assumptions about interest rate yield curves, exchange
rates, volatilities and default rates. When valuing instruments by reference to comparable instruments,
management takes into account the maturity, structure and rating of the instrument with which the position
held is being compared.
The Group only uses models with unobservable inputs for the valuation of certain unquoted equity
investments. In these cases, estimates are made to reflect uncertainties in fair values resulting from a lack
of market data inputs, for example, as a result of illiquidity in the market. Inputs into valuations based on
unobservable data are inherently uncertain because there is little or no current market data available from
which to determine the level at which an arm’s length transaction would occur under normal business
conditions. Unobservable inputs are determined based on the best information available.
Further details on the fair value of assets and liabilities are disclosed in Note 22.
5.7 Retirement benefits
The cost of defined benefit pension plans is determined using actuarial valuations. The actuarial valuations
involve making assumptions about discount rates, the expected rate of return on plan assets, future salary
increases, mortality rates as well as future pension increases where necessary. The Group’s management
sets these assumptions based on market expectations at the reporting date using its best estimates for
each parameter covering the period over which the obligations are to be settled. In determining the
appropriate discount rate, management considers the yield curve of high quality corporate bonds. In
determining other assumptions, a certain degree of judgement is required. Future salary increases are
based on expected future inflation rates for the specific country plus a margin to reflect the best possible
estimate relating to parameters such as productivity, workforce maturity and promotions. The expected
return on plan assets is based on the composition of each fund’s plan assets, estimating a different rate of
return for each asset class. Estimates of future inflation rates on salaries and expected rates of return of
plan assets represent management’s best estimates for these variables. These estimates are derived after
consultation with the Group’s advisors, and involve a degree of judgement. Due to the long-term nature of
these plans, such estimates are inherently uncertain.
Further details on retirement benefits are disclosed in Note 14.
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BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.8 Non-life insurance business
The Group is engaged in the provision of non-life insurance services. Risks under these policies usually
cover a period of 12 months.
The liabilities for outstanding claims arising from insurance contracts issued by the Group are calculated
based on case estimates using facts known at the reporting date. With time, these estimates are
reconsidered and any adjustments are recognised in the financial statements of the period in which they
arise.
The principal assumptions underlying the estimates for each claim are based on experience and market
trends taking into consideration claims handling costs. Other external factors that may affect the estimate
of claims, such as recent court rulings and the introduction of new legislation, are also taken into account.
Provision is also made for claims incurred but not reported (IBNR) by the reporting date. Past experience as
to the number and amount of claims reported after the reporting date is taken into consideration in
estimating the IBNR provision.
Insurance contract liabilities are sensitive to changes in the above key assumptions. The sensitivity of
certain assumptions, such as the introduction of new legislation and the rulings of certain court cases, are
very difficult to quantify. Furthermore, the delays that arise between the occurrence of a claim and its
subsequent notification and eventual settlement increase the uncertainty existing at the reporting date.
Further information on non-life insurance business is disclosed in Note 12.
5.9 Life insurance business
The Group is engaged in the provision of life insurance services. Whole life insurance plans (life plans) are
unit-linked contracts associated with assets where the amount payable in the case of death is the greater of
the sum insured and the value of investment units. Simple insurance or temporary term plans (term plans)
relate to fixed term duration plans for protection against death. In case of death within the coverage period,
the insured sum will be paid. Endowment insurance (investment plans/mortgage plans/horizon plans) refer
to specific duration plans linked to investments, to create capital through systematic investment in
association with death insurance coverage whereby the higher of the sum insured and the value of
investment units is payable on death within the contract term.
Further information on life insurance business is disclosed in Note 12.
5.9.1 Value of in-force business
The value of the in-force business asset represents the present value of future profits expected to arise
from the portfolio of in-force life insurance. The valuation of this asset requires assumptions to be made
about future economic and operating conditions which are inherently uncertain and changes could
significantly affect the value attributed to these assets.
The methodology used and the key assumptions that have been made in determining the carrying value of
the in-force business asset at 31 December 2021, are set out in Note 26.
5.9.2 Insurance liabilities
The calculation of liabilities and the choice of assumptions regarding insurance contracts require the
management of the Group to make significant estimates.
The assumptions underlying the estimates for each claim are based on past experience, internal factors and
conditions, as well as external factors which reflect current market prices and other published information.
The assumptions and judgements are determined at the date of valuation of liabilities and are assessed
systematically so that the reliability and realistic position can be ensured.
Estimates for insurance contracts are made in two stages. Initially, at the start of the contract, the Group
determines the assumptions regarding future deaths, voluntary terminations, investment returns and
administration expenses. Subsequently, at each reporting date, an actuarial valuation is performed which
assesses whether liabilities are adequate according to the most recent estimates.
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.9 Life insurance business (continued)
5.9.2 Insurance liabilities (continued)
The assumptions with the greatest influence on the valuation of insurance liabilities are presented below:
Mortality and morbidity rates
Assumptions are based on standard international tables of mortality and morbidity, according to the type of
contract. In addition, a study is performed based on the actual experience (actual deaths) of the insurance
company for comparison purposes and if sufficient evidence exists which is statistically reliable, the results
are incorporated in these tables. An increase in mortality rates will lead to a larger expected number of
claims (or claims could occur sooner than anticipated), which will increase the expenditure and reduce
profits for shareholders.
Investment return and discount rate
The weighted average rate of return is derived based on assets that are assumed to back liabilities,
consistent with the long-term investment strategy of the Group. These estimates are based on current
market returns as well as expectations about future economic and financial developments. An increase in
investment returns would lead to an increase in profits for shareholders.
Management expenses
Assumptions are made for management fees and contract maintenance as well as for general expenses, and
are based on the actual costs of the Group. An assumption is also made for the rate of increase in expenses
in relation to the annual inflation rate. An increase in the level of expenses would reduce profits for
shareholders.
Lapses
Every two years an analysis of contract termination rates is performed, using actual data from the insurance
company incorporation until the immediate preceding year. Rates vary according to the type and duration of
the plan. According to the insurance legislation of Cyprus, no assumption is made for policy termination
rates in the actuarial valuation.
Further details on insurance liabilities are disclosed in Note 32.
5.10 Exercise of significant influence
The Group determines whether it exercises significant influence on companies in which it has shareholdings
of less than 20% if other factors exist that demonstrate significant influence. In performing this assessment
it considers its representation in the Board of Directors which gives rise to voting rights of more than 20%
and participation in policy-making processes, including participation in decisions about dividends and other
distributions.
5.11 Classification of properties
The Group determines whether a property is classified as investment property or stock of property as
follows:
Investment properties comprise land and buildings that are not occupied for use by, or in the
operations of the Group, nor for sale in the ordinary course of business, but are held primarily to
earn rental income and/or capital appreciation. These buildings are substantially rented to tenants
and not intended to be sold in the ordinary course of business. Additionally they comprise leased
properties which are acquired in exchange of debt and are leased out under operating leases.
Stock of property comprises real estate assets held with an intention to be disposed of. This
principally relates to properties acquired through debt-for-property swaps and properties acquired
through the acquisition of certain operations of Laiki Bank in 2013 (except from those that are
leased out and are classified as investment properties).
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BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
5. Significant and other judgements, estimates and assumptions (continued)
5.12 Fair value of properties held for own use and investment properties
The Group’s accounting policy for property held for own use, as well as for investment property requires
that it is measured at fair value. In the case of property held for own use, valuations are carried out
periodically so that the carrying value is not materially different from the fair value, whereas in the case of
investment properties, the fair value is established at each reporting date. Valuations are carried out by
qualified valuers by applying valuation models recommended by the internationally accepted valuation
standards.
In arriving at their estimates of the fair values of properties, the valuers used their market knowledge and
professional judgement and did not rely solely on historical transactional comparable information, taking
into consideration that there is a greater degree of uncertainty than that which exists in a more active
market. Depending on the nature of the underlying asset and available market information, the
determination of the fair value of property may require the use of estimates such as future cash flows from
assets and discount rates applicable to those assets. All these estimates are based on local market
conditions existing at the reporting date.
Further information on inputs used is disclosed in Note 22.
5.13 Leases
Incremental Borrowing Rate (IBR)
The determination of an IBR term structure which is used in the measurement of the present value of the
future lease payments as described in Note 2.27, inherently involves significant judgement. The IBR used
was based on the Cyprus Government yield curve, with no further adjustment, as a fair proxy for the
Group’s secured borrowing cost, for a time horizon in accordance to the lease term. The sensitivity analysis
on the yield curve performed by BOC PCL showed that the value of the lease liability and corresponding RoU
assets is relatively insensitive to changes in the IBR.
Lease term
In determining the lease term, management considers all facts and circumstances that could make a
contract enforceable, such as the economics of the contract. The following assumptions were made for the
duration of lease term depending on the contract terms:
For cancellable leases, an assessment was made at the initial application of the standard and
subsequently updated where considered appropriate, based on the horizon used in the Group’s
financial plan. The current medium term financial plan assessment is for a duration of 4 years.
The lease term was therefore based on an assessment of either 4 years (being the medium time
horizon) or 8 years (being an assessment of a longer time horizon).
For non-cancellable leases, the lease term has been assessed to be the non-cancellable period.
For leases with an option for renewal, the Group’s past practice regarding the period over which it
has typically used properties (whether leased or owned), and its economic reasons for doing so,
provide information that is helpful in assessing whether the lessee is reasonably certain to
exercise, or not to exercise, an option.
Low value assets
The Group has exercised judgement in determining the threshold of low value assets which was set at
€5,000.
Further details on the leases are disclosed in Note 43.
6. Segmental analysis
The Group’s activities are mainly concentrated in Cyprus. Cyprus operations are organised into operating
segments based on the line of business. As from 2021, the results of the overseas activities of the Group,
namely Greece, Romania and Russia, which were previously grouped together and presented into segment
‘Overseas’, are now presented within segment ‘Other’, given the size of these operations which are in a run-
down mode in the last years. Further, the results of certain small subsidiaries of the Group have been re-
allocated from segment ‘Other’ to different segments based on their key activities as to better align with
current management information. The impact of this alignment was not material to the presentation of the
individual segments results. Comparative information in analysis by business line, analysis of total revenue
and analysis of assets and liabilities were restated to account for these changes.
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
6. Segmental analysis (continued)
The operating segments are analysed below:
The Corporate, Small and medium-sized enterprises and Retail business lines are managing loans
and advances to customers. Categorisation of loans per customer group is detailed below.
Global corporate is managing loans and advances to customers within the large corporate
section, the Shipping centre, the International Corporate Lending, the International Syndicate
and Project Finance.
Restructuring and recoveries is the specialised unit which was set up to tackle the Group’s loan
portfolio quality and manages exposures to borrowers in distress situation through innovative
solutions.
International banking services specialises in the offering of banking services to the international
corporate and non-resident individuals, particularly international business companies whose
ownership and business activities lie outside Cyprus.
Wealth management oversees the provision of private banking and wealth management, Market
execution and Custody along with Asset Management and Investment Banking. The business line
Wealth also includes subsidiary companies of the Group, whose activities relate to investment
banking and brokerage, investment holding and management, administration and safekeeping of
UCITS units.
The Real Estate Management Unit manages properties acquired through debt-for-property swaps
and properties acquired through the acquisition of certain operations of Laiki Bank in 2013, and
executes exit strategies in order to monetise these assets. The business line REMU also includes
other subsidiary property companies of the Group.
Treasury is responsible for liquidity management and for overseeing operations to ensure
compliance with internal and regulatory liquidity policies and provide direction as to the actions
to be taken regarding liquidity availability.
The Insurance business line is involved in both life and non-life insurance business.
The business line 'Other' includes central functions of BOC PCL such as finance, risk management,
compliance, legal, corporate affairs and human resources. These functions provide services to the
operating segments. 'Other' includes also other subsidiary companies in Cyprus (excluding the
insurance subsidiaries, property companies under REMU and subsidiary companies under Wealth)
as well as the overseas activities of the Group.
BOC PCL broadly categorises its loans per customer group, using the following customer sectors:
Retail – all physical person customers, regardless of the facility amount, and legal entities with
facilities from BOC PCL of up to €260 thousand, excluding business property loans.
SME – any company or group of companies (including personal and housing loans to the directors
or shareholders of a company) with facilities from BOC PCL in the range of €260 thousand to €6
million and a maximum annual credit turnover of €10 million.
Corporate – any company or group of companies (including personal and housing loans to the
directors or shareholders of a company) with available credit lines with BOC PCL in excess of an
aggregate principal amount of €6 million or having a minimum annual credit turnover of €10
million. These companies are either local-larger corporations or international companies or
companies in the shipping sector (lending also includes direct lending or through syndications).
Management monitors the operating results of each business segment separately for the purposes of
performance assessment and resource allocation. Segment performance is evaluated based on profit after
tax and non-controlling interests. Inter-segment transactions and balances are eliminated on consolidation
and are made on an arm’s length basis.
Operating segment disclosures are provided as presented to the Group Executive Committee.
Income and expenses associated with each business line are included for determining its performance.
Transfer pricing methodologies are applied between the business lines to present their results on an arm’s
length basis. Income and expenses incurred directly by the business lines are allocated to the business lines
as incurred. Indirect income and expenses are re-allocated from the central functions to the business lines.
For the purposes of the Cyprus analysis by business line, notional tax at the 12.5% Cyprus tax rate is
charged/credited to profit or loss before tax of each business line.
The loans and advances to customers, the customer deposits and the related income and expense are
generally included in the segment where the business is managed, instead of the segment where the
transaction is recorded.
104
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
6. Segmental analysis (continued)
Analysis by business line
Corporate
Global
corporate
Small and
medium-
sized
enterprises
Retail
Restructuring
and recoveries
International
banking
services
Wealth
management
REMU Insurance Treasury Other Total
2021
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Net interest income/(expense) 50,576 55,589 29,175 77,110 48,138 7,823 747 (3,445) (52) 22,273 8,366 296,300
Net fee and commission income/(expense) 14,634 9,048 9,465 45,537 13,041 54,782 5,592 (179) (7,616) 1,632 25,860 171,796
Net foreign exchange gains/(losses) 534 278 511 1,872 77 5,868 2,814 - - 4,035 514 16,503
Net (losses)/gains on financial instrument transactions and on
disposal/dissolution of subsidiaries and associates
- (113) - - (17,179) - (338) 6 (541) (6,797) 2,915 (22,047)
Insurance income net of claims and commissions - - - - - - - - 60,871 - 173 61,044
Net losses from revaluation and disposal of investment properties - - - - - - - (2,674) 245 - 601 (1,828)
Net gains on disposal of stock of property - - - - - - - 12,422 - - 874 13,296
Other income
5 5 12 502 52 3 347 5,874 63 - 7,968 14,831
65,749 64,807 39,163 125,021 44,129 68,476 9,162 12,004 52,970 21,143 47,271 549,895
Staff costs (5,284) (3,009) (6,074) (60,775) (14,975) (12,731) (4,080) (3,972) (11,303) (1,526) (78,758) (202,487)
Staff costs–voluntary exit plan and other termination benefits (842) (363) (1,470) (8,464) (1,911) (1,724) (79) (483) (1,113) (178) 481 (16,146)
Special levy on deposits and other levies/contributions (2,294) (1,165) (1,802) (23,197) (110) (7,095) (687) - - - - (36,350)
Other operating (expenses)/income (excluding advisory and other restructuring
costs)
(18,225) (18,021) (16,838) (73,283) (23,874) (9,886) (3,921) (17,054) (9,077) (9,724) 55,839 (144,064)
Other operating expenses - advisory and other restructuring costs
- - - - (21,612) - - (1,201) - - (311) (23,124)
39,104 42,249 12,979 (40,698) (18,353) 37,040 395 (10,706) 31,477 9,715 24,522 127,724
Net gains/(losses) on derecognition of financial assets measured at amortised
cost
4,363 2,108 1,058 304 (3,872) (104) 2 - - - - 3,859
Credit (losses)/gains to cover credit risk on loans and advances to customers 1,382 (6,655) 1,967 12,880 (42,098) 804 (307) - - - (8,314) (40,341)
Credit gains/(losses) of other financial instruments - - - - - - 7 (2,118) (8) 129 (3,813) (5,803)
Impairment net of reversals of non-financial assets - - - - - - - (47,062) - - (2,394) (49,456)
Share of profit from associates
- - - - - - - - - - 137 137
Profit/(loss) before tax
44,849 37,702 16,004 (27,514) (64,323) 37,740 97 (59,886) 31,469 9,844 10,138 36,120
Income tax
(5,606) (4,713) (2,000) 3,439 8,040 (4,717) (158) 7,255 (4,733) (1,230) 180 (4,243)
Profit/(loss) after tax
39,243 32,989 14,004 (24,075) (56,283) 33,023 (61) (52,631) 26,736 8,614 10,318 31,877
Non-controlling interests-profit
- - - - - - - - - - (2,168) (2,168)
Profit/(loss) after tax attributable to the owners of the Company
39,243 32,989 14,004 (24,075) (56,283) 33,023 (61) (52,631) 26,736 8,614 8,150 29,709
105
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
6. Segmental analysis (continued)
Analysis by business line (continued)
Corporate
Global
corporate
Small and
medium-
sized
enterprises
Retail
Restructuring
and recoveries
International
banking
services
Wealth
management
REMU Insurance Treasury Other Total
2020 (restated)
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Net interest income/(expense) 65,524 66,953 36,579 125,818 26,162 17,410 2,271 (15,075) (12) (183) 4,551 329,998
Net fee and commission income/(expense) 11,484 7,364 8,570 37,370 8,229 50,222 4,822 (174) (6,896) 1,735 21,948 144,674
Net foreign exchange gains/(losses) 622 220 540 1,856 105 5,686 2,919 - - 5,545 (958) 16,535
Net gains/(losses) on financial instrument transactions and on disposal/dissolution of
subsidiaries and associates
- 3,966 - - (360) - 669 2 250 808 (3,614) 1,721
Insurance income net of claims and commissions - - - - - - - - 54,744 - 1,319 56,063
Net (losses)/gains from revaluation and disposal of investment properties - - - - - - - (1,038) 292 - (753) (1,499)
Net gains on disposal of stock of property - - - - - - - 7,958 - - 231 8,189
Other income
3 3 12 133 118 2 361 8,716 175 - 5,434 14,957
77,633 78,506 45,701 165,177 34,254 73,320 11,042 389 48,553 7,905 28,158 570,638
Staff costs (5,070) (2,719) (5,766) (60,267) (15,929) (11,993) (4,237) (4,322) (9,939) (1,517) (73,468) (195,227)
Staff costs–voluntary exit plan and other termination benefits (149) (79) (400) (3,521) (1,021) (252) (30) (50) - (217) (106) (5,825)
Special levy on deposits and other levies/contributions (1,952) (1,241) (1,451) (18,769) (138) (6,111) (548) - - - (3,446) (33,656)
Other operating (expenses)/income (excluding advisory and other restructuring costs) (11,695) (8,214) (14,646) (77,840) (27,784) (13,332) (3,364) (8,913) (8,808) (12,211) 13,736 (173,071)
Other operating (expenses)/income - advisory and other restructuring costs
- - (117) - (14,437) - - (1,106) - - 171 (15,489)
58,767 66,253 23,321 4,780 (25,055) 41,632 2,863 (14,002) 29,806 (6,040) (34,955) 147,370
Net (losses)/gains on derecognition of financial assets measured at amortised cost (460) 2,137 692 (916) 1,103 41 147 - - - 205 2,949
Credit (losses)/gains to cover credit risk on loans and advances to customers (8,669) (17,523) (1,096) (4,378) (228,980) (779) 496 - - - (14,151) (275,080)
Credit losses of other financial instruments - - - - - - (48) (412) (87) (3,625) (413) (4,585)
Impairment net of reversals of non-financial assets - - - - - - - (34,328) - - (3,258) (37,586)
Share of profit from associates
- - - - - - - - - - 69 69
Profit/(loss) before tax
49,638 50,867 22,917 (514) (252,932) 40,894 3,458 (48,742) 29,719 (9,665) (52,503) (166,863)
Income tax
(6,205) (6,358) (2,865) 64 31,616 (5,112) (678) 5,285 (4,379) 1,208 (20,496) (7,920)
Profit/(loss) after tax
43,433 44,509 20,052 (450) (221,316) 35,782 2,780 (43,457) 25,340 (8,457) (72,999) (174,783)
Non-controlling interests-losses
- - - - - - - - - - 3,251 3,251
Profit/(loss) after tax attributable to the owners of the Company
43,433 44,509 20,052 (450) (221,316) 35,782 2,780 (43,457) 25,340 (8,457) (69,748) (171,532)
106
BANK OF CYPRUS HOLDINGS GROUP
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Notes to the Consolidated Financial Statements
6. Segmental analysis (continued)
Analysis of total revenue
Total revenue includes net interest income, net fee and commission income, net foreign exchange gains, net gains/(losses) on financial instrument
transactions, insurance income net of claims and commissions, net gains/(losses) from revaluation and disposal of investment properties, net gains/(losses) on
disposal of stock of property and other income. There was no revenue deriving from transactions with a single external customer that amounted to 10% or
more of Group revenue.
Corporate
Global
corporate
Small and
medium-sized
enterprises
Retail
Restructuring
and recoveries
International
banking
services
Wealth
management
REMU Insurance Treasury Other Total
2021
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Revenue from third parties 75,871 75,421 42,834 137,180 48,153 64,739 9,927 15,132 59,770 (25,756) 46,624 549,895
Inter-segment (expense)/revenue
(10,122) (10,614) (3,671) (12,159) (4,024) 3,737 (765) (3,128) (6,800) 46,899 647 -
Total revenue
65,749 64,807 39,163 125,021 44,129 68,476 9,162 12,004 52,970 21,143 47,271 549,895
2020 (restated)
Revenue from third parties 79,822 84,858 44,666 130,841 83,940 58,921 9,625 14,792 48,078 (15,393) 30,488 570,638
Inter-segment (expense)/revenue
(2,189) (6,352) 1,035 34,336 (49,686) 14,399 1,417 (14,403) 475 23,298 (2,330) -
Total revenue
77,633 78,506 45,701 165,177 34,254 73,320 11,042 389 48,553 7,905 28,158 570,638
Analysis of assets and liabilities
Corporate
Global
corporate
Small and
medium-sized
enterprises
Retail
Restructuring
and recoveries
International
banking
services
Wealth
management
REMU Insurance Treasury Other Total
2021
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Assets
Assets 2,012,908 2,139,025 1,036,958 4,011,930 703,926 134,596 73,512 1,282,342 1,023,678 11,412,964 1,583,202 25,415,041
Inter-segment assets
- - - - - - (12,036) (16,240) (20,367) - (15,227) (63,870)
2,012,908 2,139,025 1,036,958 4,011,930 703,926 134,596 61,476 1,266,102 1,003,311 11,412,964 1,567,975
25,351,171
Assets between Cyprus and overseas operations
(388,474)
Total assets
24,962,697
107
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
6. Segmental analysis (continued)
Analysis of assets and liabilities (continued)
Corporate
Global
corporate
Small and
medium-sized
enterprises
Retail
Restructuring
and recoveries
International
banking
services
Wealth
management
REMU Insurance Treasury Other Total
2020 (restated)
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Assets
Assets 1,918,726 2,043,938 1,079,633 3,798,897 1,354,964 132,900 62,716 1,552,685 935,705 7,736,802 1,364,567 21,981,533
Inter-segment assets
- - - - - - (13,154) (16,751) (18,334) - (17,751) (65,990)
1,918,726 2,043,938 1,079,633 3,798,897 1,354,964 132,900 49,562 1,535,934 917,371 7,736,802 1,346,816
21,915,543
Assets between Cyprus and overseas operations
(401,412)
Total assets
21,514,131
Corporate
Global
corporate
Small and
medium-sized
enterprises
Retail
Restructuring
and recoveries
International
banking
services
Wealth
management
REMU Insurance Treasury Other Total
2021
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
Liabilities
Liabilities 1,117,148 631,002 866,860 11,051,397 45,994 3,500,183 335,587 13,359 826,816 4,161,124 785,469 23,334,939
Inter-segment liabilities
- - - - - - - - - (63,870) - (63,870)
1,117,148 631,002 866,860 11,051,397 45,994 3,500,183 335,587 13,359 826,816 4,097,254 785,469
23,271,069
Liabilities between Cyprus and overseas operations
(389,599)
Total liabilities
22,881,470
2020 (restated)
Liabilities
Liabilities 1,037,430 607,467 832,576 10,525,819 58,389 3,180,061 309,518 6,394 747,410 1,721,601 880,939 19,907,604
Inter-segment liabilities
- - - - - - - - - (65,990) - (65,990)
1,037,430 607,467 832,576 10,525,819 58,389 3,180,061 309,518 6,394 747,410 1,655,611 880,939
19,841,614
Liabilities between Cyprus and overseas operations
(402,537)
Total liabilities
19,439,077
Segmental analysis of customer deposits and loans and advances to customers is presented in Notes 31 and 45.2 and 45.4 respectively.
108
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
6. Segmental analysis (continued)
Analysis of turnover
2021 2020
€000 €000
Interest income and income similar to interest income 388,549 436,709
Fees and commission income 180,212 151,091
Net foreign exchange gains 16,503 16,535
Gross insurance premiums (Note 12) 190,432 176,706
Losses of investment properties and stock of properties (35,307) (30,903)
Other income
14,831 14,957
755,220 765,095
The analysis of 'Losses of investment properties and stock of properties' is provided in the table below:
2021 2020
€000 €000
Net losses from revaluation and disposal of investment properties (1,828) (1,499)
Net gains on disposal of stock of property (Note 27) 13,296 8,189
Impairment of stock of property (Note 16)
(46,775) (37,593)
(35,307) (30,903)
7. Interest income and income similar to interest income
Interest income
2021 2020
€000 €000
Financial assets at amortised cost:
- Loans and advances to customers 309,280 355,377
- Loans and advances to banks and central banks 1,117 1,467
- Debt securities 7,574 10,710
- Other financial assets (Note 28) 5,335 -
Debt securities at FVOCI 12,528 16,319
Negative interest on funding from central banks
25,094 5,306
360,928 389,179
Income similar to interest income
2021 2020
€000 €000
Loans and advances to customers at FVPL 12,382 13,216
Derivative financial instruments
15,239 34,314
27,621 47,530
109
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
8. Interest expense and expense similar to interest expense
Interest expense
2021 2020
Financial liabilities at amortised cost: €000 €000
- Customer deposits 5,707 14,034
- Funding from central banks and deposits by banks 1,623 1,573
- Loan stock 27,687 23,329
- Repurchase agreements - 3,784
Negative interest on loans and advances to banks and balances with central
banks
31,919 18,782
Interest expense on lease liabilities (Note 43)
121 489
67,057 61,991
Expense similar to interest expense
2021 2020
€000 €000
Derivative financial instruments
25,192 44,720
9. Fee and commission income and expense
Fee and commission income
2021 2020
€000 €000
Credit-related fees and commissions 46,445 40,782
Other banking commissions 96,325 81,105
Fees on servicing loans disposed of under Project Helix 2/Helix
7,009 2,170
Mutual funds and asset management fees 3,896 3,381
Brokerage commissions 1,029 966
Other commissions
25,508 22,687
180,212 151,091
Mutual funds and asset management fees relate to fiduciary and other similar activities.
Credit-related fees and commissions include commissions from credit card arrangements amounting to
€24,810 thousand (2020: €19,806 thousand). Other banking commissions include commissions from
payment orders amounting to €27,462 thousand (2020: €26,659 thousand) and account maintenance fees
of €23,388 thousand (2020: €20,089 thousand). Liquidity fee is also included within other banking
commissions.
Fee and commission expense
2021 2020
€000 €000
Banking commissions 8,013 5,848
Mutual funds and asset management fees 278 274
Brokerage commissions
125 295
8,416 6,417
10. Net foreign exchange gains
Net foreign exchange gains comprise of the conversion of monetary assets and liabilities in foreign currency
at the reporting date, realised exchange gains/(losses) from transactions in foreign currency settled during
the year and the revaluation of foreign exchange derivatives.
110
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
11. Net (losses)/gains on financial instrument transactions and disposal/dissolution of
subsidiaries and associates
2021 2020
€000 €000
Trading portfolio:
- derivative financial instruments 132 (747)
Other investments at FVPL:
- debt securities 5,534 (3,779)
- mutual funds (829) 680
- equity securities 3,139 794
Net gains on disposal of FVOCI debt securities - 2,865
Net loss on early redemption of subordinated loan stock (Note 33)
(12,558) -
Net (losses)/gains on loans and advances to customers at FVPL (Note 22) (17,292) 3,606
Revaluation of financial instruments designated as fair value hedges:
- hedging instruments (Note 21) 19,878 (5,205)
- hedged items (Note 21) (19,327) 5,760
Net losses on financial liabilities at FVPL - (34)
Loss on disposal/dissolution of subsidiaries and associates
(724) (2,219)
(22,047) 1,721
In April 2021, BOC PCL invited the holders of its €250 million unsecured and subordinated Tier 2 Capital
Note (issued in January 2017) to tender it for purchase by BOC PCL at a price of 105.5% plus accrued
interest. BOC PCL received valid tenders for approximately €207 million in aggregate nominal amount, all of
which were accepted and subsequently repurchased a further €7 million in the open market. As a result,
BOC PCL incurred a loss of €12,558 thousand, while at the same time forfeiting the relevant obligation for
future coupon payments. Further information is provided in Note 33.
The loss on disposal/dissolution of subsidiaries for 2021 relates mainly to the loss on the disposal of the
subsidiary Global Balanced Fund of Funds Salamis Variable Capital Investment Company PLC and to the loss
on the disposal of the subsidiary CLR Investment Fund Public Ltd (Note 51) and to the loss on the disposal
of the associate Apollo Global Equity Fund of Funds Variable Capital Investment Company PLC (Note 52).
The loss on disposal/dissolution of subsidiaries for 2020 mainly arises on the agreement signed between
the Group's life insurance subsidiary and NN Hellenic Life Insurance Company S.A. for the disposal of the
portfolio of the life insurance subsidiary's branch in Greece and the dissolution of the subsidiary Bank of
Cyprus (Channel Islands) Ltd.
12. Insurance income net of claims and commissions
2021 2020
Income
Claims and
commissions
Insurance
income net of
claims and
commissions
Income
Claims and
commissions
Insurance
income net of
claims and
commissions
€000 €000 €000 €000 €000 €000
Life insurance
business
153,351 (124,354) 28,997 114,805 (87,544) 27,261
Non-life
insurance
business
52,510 (20,463) 32,047 51,605 (22,803) 28,802
205,861 (144,817) 61,044 166,410 (110,347) 56,063
111
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
12. Insurance income net of claims and commissions (continued)
2021 2020
Life
insurance
Non-life
insurance
Life
insurance
Non-life
insurance
Income €000 €000 €000 €000
Gross premiums 113,171 77,261 101,740 74,966
Reinsurance premiums
(17,084) (35,311) (16,143) (33,749)
Net premiums 96,087 41,950 85,597 41,217
Change in provision for unearned premiums
- (649) - -
Total net earned premiums 96,087 41,301 85,597 41,217
Investment income and other income 45,766 - 12,594 -
Commissions from reinsurers and other
income
7,784 11,209 7,071 10,388
149,637 52,510 105,262 51,605
Change in value of in-force business before
tax (Note 26)
3,714 - 9,543 -
153,351 52,510 114,805 51,605
2021 2020
Life
insurance
Non-life
insurance
Life insurance
Non-life
insurance
Claims and commissions €000 €000 €000 €000
Gross payments to policyholders (51,101) (22,766) (49,464) (26,277)
Reinsurers' share of payments to
policyholders
4,970 8,858 4,455 10,857
Gross change in insurance contract liabilities (64,375) 1,171 (29,463) (2,605)
Reinsurers’ share of gross change in
insurance contract liabilities
2,939 (1,833) 1,150 2,198
Commissions paid to agents and other direct
selling costs
(16,787) (5,893) (14,222) (6,976)
(124,354) (20,463) (87,544) (22,803)
In addition to the above, the following income and expense items related to the insurance operations have
been recognised in the consolidated income statement:
2021 2020
Life
insurance
Non-life
insurance
Life
insurance
Non-life
insurance
€000 €000 €000 €000
Net (expense)/income from non-linked
insurance business assets
(85) 205 (129) (34)
Net gains/(losses) on financial instrument
transactions and other non-linked insurance
business income
1,114 (535) (1,077) 836
Staff costs (6,357) (6,249) (5,312) (4,813)
Other operating expenses (6,851) (2,832) (6,934) (2,591)
112
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
13. Other income
2021 2020
€000 €000
Dividend income 1,774 294
Profit/(loss) on sale and write-off of property and equipment and intangible
assets
7 (90)
Rental income from investment properties 4,630 5,720
Rental income from stock of property 357 835
Income from hotel, golf and leisure activities 2,539 2,121
Other income
5,524 6,077
14,831 14,957
The income from hotel, golf and leisure activities primarily relates to activities of subsidiaries acquired in
debt satisfaction as part of loan restructuring activity.
14. Staff costs
Staff costs
2021 2020
€000 €000
Salaries 160,605 156,263
Employer’s contributions to state social insurance 28,186 26,582
Retirement benefit plan costs
13,696 12,382
202,487 195,227
Restructuring costs - voluntary exit plans and other termination benefits
16,146 5,825
218,633 201,052
The number of persons employed by the Group as at 31 December 2021 was 3,438 and includes 49 persons
that have accepted the voluntary exit plan (VEP) and left the Group in early 2022 (2020: 3,573).
In December 2021, the Group completed a VEP, through which 102 of the Group’s full-time employees were
approved to leave at a total cost of €16,146 thousand. In December 2020, the Group proceeded with a
targeted voluntary exit plan for its employees in Cyprus, with a cost amounting to €5,825 thousand. In total
27 employees accepted the targeted voluntary exit plan and left the Group in early 2021.
In July 2021, BOC PCL reached an agreement with the Cyprus Union of Bank employees for the renewal of
the collective agreement for the years 2021 and 2022. The agreement relates to certain changes including
the introduction of a new pay grading structure linked to the value of each position of employment, and of a
performance related pay component as part of the annual salary increase, both of which have been long-
standing objectives of BOC PCL and are in line with market best-practice.
During the year ended 31 December 2021 an amount of €1,235 thousand (2020: €nil) relating to staff costs
has been capitalised as internally developed computer software (Note 26).
113
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
14. Staff costs (continued)
The following table shows the analysis per geographical location of the Group’s average number of
employees (full time) and analysis of the average number of employees in Cyprus per business line for 2021
and 2020.
2021 2020
Corporate 92 91
Global Corporate
69 67
Small and medium-sized enterprises 107 107
Retail 1,091 1,127
Restructuring and recoveries 247 304
International banking services 243 248
Wealth management 37 39
Treasury 23 23
REMU 55 56
Insurance 203 189
Other (primarily head office functions)
1,348 1,322
Total Cyprus 3,515 3,573
United Kingdom - 1
Other countries
15 19
3,530 3,593
Retirement benefit plan costs
In addition to the employer's contributions to state social insurance, the Group operates plans for the
provision of additional retirement benefits as described below:
2021 2020
€000 €000
Defined benefit plans 586 592
Defined contribution plans
13,110 11,790
13,696 12,382
Cyprus
The main retirement plan for the Group’s permanent employees in Cyprus (88% of total Group employees)
is a defined contribution plan. This plan provided for employer contributions of 9% for the period 1 January
2021 to 31 August 2021, revised to 8% from 1 September 2021 (2020: 8%) and employee contributions of
3%-10% of the employees’ gross salaries. This plan is managed by an Administrative Committee appointed
by the members.
A small number of employees who do not participate in the main retirement plan, are members of a pension
scheme that is closed to new entrants and may receive part or all of their retirement benefit entitlement by
way of a pension for life. This plan is managed by an Administrative Committee composed of
representatives of both the members and the employer.
A small number of employees of Group subsidiaries in Cyprus are also members of defined benefit plans.
These plans are funded with assets backing the obligations held in separate legal vehicles.
Greece
Following IFRIC’s decision in May 2021 about the periods of service to which an entity attributes benefit for
a particular defined benefit plan, the Group as at 31 December 2021 does not have any retirement benefits
obligation for its employees in Greece, and as a result the accumulated actuarial gains/losses attributable to
these plans were derecognised as at 31 December 2021. As at 31 December 2021 and 2020 the remaining
retirement benefit obligation in Greece related to Group subsidiaries.
United Kingdom
The Group has assumed in prior years the obligation of the defined benefit plan of its employees in the
United Kingdom which was closed in December 2008 to future accrual of benefits for active members.
114
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
14. Staff costs (continued)
Other countries
The Group does not operate any retirement benefit plans in Romania and Russia.
Analysis of the results of the actuarial valuations for the defined benefit plans
Amounts recognised in the consolidated balance sheet
2021
€000
2020
€000
Liabilities (Note 34)
1,673 9,568
Two of the plans have a total funded status surplus of €5,462 thousand (2020: one plan with surplus
€2,759 thousand) that is not recognised as an asset on the basis that the Group has no unconditional right
to future economic benefits either via a refund or a reduction in future contributions.
115
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
14. Staff costs (continued)
The amounts recognised in the consolidated balance sheet and the movement in the net defined benefit obligation for the years ended 31 December 2021 and
2020 are presented below:
Present value of
obligation
Fair value of
plan assets
Net amount
before impact of
asset ceiling
Impact of
minimum
funding
requirement/
asset ceiling
Net defined
benefit liability
€000 €000 €000 €000 €000
1 January 2021
93,012 (86,203) 6,809 2,759 9,568
Current service cost 533 - 533 - 533
Net interest expense/(income)
1,178 (1,125) 53 - 53
Total amount recognised in the consolidated income
statement
1,711 (1,125) 586 - 586
Remeasurements:
Return on plan assets, excluding amounts included in
net interest expense
- (5,563) (5,563) - (5,563)
Actuarial loss from changes in financial assumptions (2,530) - (2,530) - (2,530)
Demographic assumptions (170) - (170) - (170)
Experience adjustments 409 - 409 - 409
Change in asset ceiling
- - - 2,703 2,703
Total amount recognised in the consolidated OCI
(2,291) (5,563) (7,854) 2,703 (5,151)
Exchange differences 5,291 (4,993) 298 - 298
Contributions:
Employer - (3,585) (3,585) - (3,585)
Plan participants 185 (185) - - -
Benefits paid from the plans (2,827) 2,827 - - -
Benefits paid directly by the employer
(43) - (43) - (43)
31 December 2021
95,038 (98,827) (3,789) 5,462 1,673
116
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
14. Staff costs (continued)
Present value of
obligation
Fair value of
plan assets
Net amount
before impact of
asset ceiling
Impact of
minimum
funding
requirement/
asset ceiling
Net defined
benefit liability
€000 €000 €000 €000 €000
1 January 2020
89,726 (83,441) 6,285 2,927 9,212
Current service cost 501 - 501 - 501
Net interest expense/(income)
1,560 (1,469) 91 - 91
Total amount recognised in the consolidated income
statement
2,061 (1,469) 592 - 592
Remeasurements:
Return on plan assets, excluding amounts included in
net interest expense
- (6,105) (6,105) - (6,105)
Actuarial loss from changes in financial assumptions 9,692 - 9,692 - 9,692
Demographic assumptions (133) - (133) - (133)
Experience adjustments 129 - 129 - 129
Change in asset ceiling
- - - (168) (168)
Total amount recognised in the consolidated OCI
9,688 (6,105) 3,583 (168) 3,415
Exchange differences (3,961) 3,587 (374) - (374)
Contributions:
Employer - (3,277) (3,277) - (3,277)
Plan participants 180 (180) - - -
Benefits paid from the plans
(4,682) 4,682 - - -
31 December 2020
93,012 (86,203) 6,809 2,759 9,568
117
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
14. Staff costs (continued)
The actual return on plan assets for year 2021 was a gain of €6,688 thousand (2020: gain of €7,574
thousand).
The assets of funded plans are generally held in separately administered entities, either as specific assets or
as a proportion of a general fund, or as insurance contracts and are governed by local regulations and
practice in each country.
Pension plan assets are invested in different asset classes in order to maintain a balance between risk and
return. Investments are well diversified to limit the financial effect of the failure of any individual
investment. Through its defined benefit plans, the Group is exposed to a number of risks as outlined below:
Interest rate risk
The Group is exposed to interest rate risk due to the mismatch of the duration
of assets and liabilities.
Changes in bond yields
A decrease in corporate bond yields will increase the liabilities, although this
will be partially offset by an increase in the value of bond holdings.
Inflation risk
The Group faces inflation risk, since the liabilities are either directly (through
increases in pensions) or indirectly (through wage increases) exposed to
inflation risks. Investments to ensure inflation-linked returns (i.e. real returns
through investments such as equities, index-linked bonds and assets whose
return increases with increasing inflation) could be used to better match the
expected increases in liabilities.
Asset volatility
The liabilities are calculated using a discount rate set with reference to
corporate bond yields; if assets underperform this yield, a deficit will be
created.
The major categories of plan assets as a percentage of total plan assets are as follows:
2021 2020
Equity securities %20 %28
Debt securities %48 %40
Loans and advances to banks %15 %12
Funds
%17 %20
%100 %100
The assets held by the funded plans include equity securities issued by the Company, the fair value of which
as at 31 December 2021 is €57 thousand (2020: €41 thousand).
The Group expects to make additional contributions to defined benefit plans of €3,847 thousand during
2022.
At the end of the reporting period, the average duration of the defined benefit obligation was 18.0 years
(2020: 18.5 years).
118
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
14. Staff costs (continued)
Principal actuarial assumptions used in the actuarial valuations
The present value of the defined benefit obligations of the retirement plans is estimated annually using the
Projected Unit Credit Method of actuarial valuation, carried out by independent actuaries. The principal
actuarial assumptions used for the valuations of the retirement plans of the Group during 2021 and 2020 are
set out below:
2021 Cyprus Greece UK
Discount rate 0.88% n/a 1.80%
Inflation rate 1.50% n/a 3.25%
Future salary increases 2.00% n/a n/a
Rate of pension increase 2.00% n/a 3.10%
Life expectancy for pensioners at age 60
23.5 years M
29.6 years F n/a n/a
Life expectancy for pensioners at age 65
n/a n/a
22.9 years M
24.3 years F
2020
Discount rate 0.33% 0.70% 1.45%
Inflation rate 1.50% 1.50% 2.85%
Future salary increases 2.00% 1.75% n/a
Rate of pension increase 2.00% n/a 2.75%
Life expectancy for pensioners at age 60
23.5 years M
29.6 years F n/a n/a
Life expectancy for pensioners at age 65
n/a n/a
22.5 years M
24.9 years F
The discount rate used in the actuarial valuations reflects the rate at which liabilities could effectively be
settled and is set by reference to market yields at the reporting date in high quality corporate bonds of
suitable maturity and currency. For the Group’s plans in the Eurozone (Cyprus and Greece) which comprise
16% of the defined benefit obligations, the Group adopted a full yield curve approach using AA- rated
corporate bond data from the iBoxx Euro Corporates AA10+ index. For the Group’s plan in the UK which
comprises 84% of the defined benefit obligations, the Group adopted a full yield curve approach using the
discount rate that has been set based on the yields on AA- rated corporate bonds with duration consistent
with the scheme’s liabilities. Under this approach, each future liability payment is discounted by a different
discount rate that reflects its exact timing.
To develop the assumptions relating to the expected rates of return on plan assets, the Group, in
consultation with its actuaries, uses forward-looking assumptions for each asset class reflecting market
conditions and future expectations at the reporting date. Adjustments are made annually to the expected
rate of return assumption based on revised expectations of future investment performance of asset classes,
changes to local legislation that may affect investment strategy, as well as changes to the target strategic
asset allocation.
The impact of significant assumptions' fluctuations on the defined benefit obligation as at 31 December
2021 and 2020 is presented below:
2021 2020
Variable Change
+0.5%
Change
-0.5%
Change
+0.5%
Change
-0.5%
Discount rate %-8.7 %9.4 %-9.0 %9.7
Inflation growth rate %5.5 %-5.4 %6.1 %-5.7
Salary growth rate %1.0 %-0.9 %1.1 %-1.1
Pension growth rate %0.1 %-0.1 %0.1 %-0.1
Plus 1 year Minus 1 year Plus 1 year Minus 1 year
Life expectancy %2.9 %-2.9 %2.8 %-2.8
119
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
14. Staff costs (continued)
The above sensitivity analysis (with the exception of the inflation sensitivity) is based on a change in one
assumption while holding all other assumptions constant. In practice this is unlikely to occur and some
changes of the assumptions may be correlated. The inflation sensitivity above includes changes to any
inflation-linked benefit increases. When calculating the sensitivity of the defined benefit obligation to
significant assumptions, the same method has been applied as when calculating the pension liability
recognised on the consolidated balance sheet. The methods and types of assumptions used in preparing
the sensitivity analysis did not change compared to previous years.
15. Other operating expenses
2021 2020
€000 €000
Repairs and maintenance expenses 33,083 31,701
Other property-related costs 12,448 12,907
Consultancy and other professional services fees 14,400 13,040
Insurance 7,965 7,284
Advertising and marketing 9,836 8,036
Depreciation of property and equipment (Note 25) 16,313 19,224
Amortisation of intangible assets (Note 26) 18,615 18,263
Communication expenses 7,254 6,852
Provisions for pending litigations, claims, regulatory and other matters
(Note 39.4)
(523) 30,897
Printing and stationery 1,851 1,953
Cash transfer expenses 2,664 2,526
Other operating expenses
20,158 20,388
144,064 173,071
Advisory and other restructuring costs
23,124 15,489
167,188 188,560
Advisory and other restructuring costs comprise mainly fees to external advisors in relation to: (i) customer
loan restructuring activities which are not part of the effective interest rate and (ii) the disposal of
operations and non-core assets.
During the year ended 31 December 2021, the Group recognised €255 thousand relating to rent expense
for short term leases, included within 'Other property-related costs' (2020: €355 thousand) and €7,520
thousand relating to the depreciation of right-of-use assets, included within 'Depreciation of property and
equipment' (2020: €8,855 thousand) (Note 43).
Within total other operating expenses an amount of €734 thousand (2020: €1,037 thousand) relates to
investment property that generated rental income.
120
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
15. Other operating expenses (continued)
Special levy on deposits and other levies/contributions as presented in the consolidated income statement
are set out below:
2021 2020
€000 €000
Special levy on deposits of credit institutions in Cyprus and contribution to
Single Resolution Fund
25,145 24,727
Guarantee fee on annual deferred tax credit (Note 17) 5,300 3,445
Contribution to Deposit Guarantee Fund
5,905 5,484
36,350 33,656
The special levy on credit institutions in Cyprus (the Special Levy) is imposed on the level of deposits as at
the end of the previous quarter, at the rate of 0.0375% per quarter. Following an amendment of the
Imposition of Special Credit Institution Tax Law in 2017, the Single Resolution Fund contribution, which is
charged annually by the Single Resolution Board, reduces the charge of the Special Levy up to the level of
the total annual Special Levy charge.
As from 1 January 2020 and until 3 July 2024 BOC PCL is subject to a contribution to the Deposit Guarantee
Fund (DGF) on a semi-annual basis. The contributions are calculated based on the Risk Based Methodology
(RBM) as approved by the management committee of the Deposit Guarantee and Resolution of Credit and
Other Institutions Schemes (DGS) and is publicly available on the CBC’s website. In line with the RBM, the
contributions are broadly calculated on the covered deposits of all authorised institutions and the target
level is to reach at 0.8% of covered deposits by 3 July 2024.
Consultancy and other professional services fees and advisory and other restructuring costs include fees
(including taxes) to the independent auditors of the Group, for audit and other professional services
provided both in Cyprus and overseas, as follows:
2021 2020
€000 €000
Audit of the individual and the Group financial statements 1,870 1,845
Other assurance services 659 368
Tax compliance and advisory services 298 211
Other non-audit services
78 385
2,905 2,809
Audit fees above include fees to the statutory auditor (PwC Ireland) of €30 thousand (excluding VAT) for the
audit of the Company financial statements (2020: €30 thousand excluding VAT) and €100 thousand
(excluding VAT) for the audit of the Company consolidated financial statements (2020: €100 thousand
excluding VAT). Other assurance services include fees relating to the interim review.
121
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
16. Credit losses of financial instruments and impairment of non-financial assets
2021 2020
€000 €000
Credit losses to cover credit risk on loans and advances to customers
Impairment loss net of reversals on loans and advances to customers (Note
45.7)
33,956 284,969
Recoveries of loans and advances to customers previously written off (11,907) (20,621)
Changes in expected cash flows 15,951 12,866
Financial guarantees and commitments (Notes 45.6.1 and 45.6.2)
2,341 (2,134)
40,341 275,080
Credit losses of other financial instruments
Amortised cost debt securities (Note 20) (32) 54
FVOCI debt securities (Note 20) (91) 78
Loans and advances to banks (Note 19) (5) 6
Other financial assets (Note 28)
5,931 4,447
5,803 4,585
Impairment net of reversals of non-financial assets
Stock of property (Note 27) 46,775 37,593
Other non-financial assets
2,681 (7)
49,456 37,586
17. Income tax
2021 2020
€000 €000
Current tax:
- Cyprus 5,202 3,934
- Overseas - 93
Cyprus special defence contribution 163 136
Deferred tax charge 641 1,611
Prior years’ tax adjustments (1,882) 838
Other tax charges
119 1,308
4,243 7,920
122
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
17. Income tax (continued)
The reconciliation between the income tax expense and the loss before tax as estimated using the current
income tax rates is set out below:
2021 2020
€000 €000
Profit/(loss) before tax
36,120 (166,863)
Income tax at the normal tax rates in Cyprus 4,515 (20,721)
Income tax effect of:
- expenses not deductible for income tax purposes 29,194 23,914
- income not subject to income tax (16,739) (11,504)
- differences between overseas income tax rates and Cyprus income tax
rates
2,041 2,593
- deferred tax charge 641 45
- losses on which deferred tax was not recognised - 11,447
- utilisation of prior years' tax losses
(13,809) -
5,843 5,774
Cyprus special defence contribution
163 -
Prior years' tax adjustments (1,882) 838
Other tax charges
119 1,308
4,243 7,920
Income tax in Cyprus is calculated at the rate of 12.5% on taxable income (2020: 12.5%).
For life insurance business there is a minimum income tax charge of 1.5% on gross premiums. Special
defence contribution is payable on rental income at a rate of 3% (2020: 3%) and on interest income from
activities outside the ordinary course of business at a rate of 30% (2020: 30%).
The Group’s profits from overseas operations are taxed at the rates prevailing in the respective countries,
which for 2021 were: Greece 22% (2020: 24%), Romania 16% (2020: 16%), Russia 20% (2020: 20%)
and UK 19% (2020: 19%).
The Group is subject to income taxes in the various jurisdictions in which it operates and the calculation of
the Group’s income tax charge and provisions for income tax necessarily involves a degree of estimation
and judgement. There are transactions and calculations for which the ultimate income tax treatment is
uncertain and cannot be determined until resolution has been reached with the relevant tax authority. The
Group has a number of open income tax returns with various income tax authorities and liabilities relating
to these open and judgemental matters are based on estimates of whether additional income taxes will be
due. In case the final income tax outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the current and deferred income tax assets and liabilities in the
period in which such determination is made.
Deferred tax
The net deferred tax assets arise from:
2021 2020
€000 €000
Difference between capital allowances and depreciation (10,990) (10,820)
Property revaluation (13,582) (14,188)
Investment revaluation and stock of property (2,847) (2,847)
Unutilised income tax losses carried forward (guaranteed deferred tax
asset)
265,364 341,182
Value of in-force life insurance business (16,236) (15,772)
Other temporary differences
(2,663) (2,177)
Net deferred tax assets
219,046 295,378
123
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
17. Income tax (continued)
The net deferred tax assets comprise:
2021 2020
€000 €000
Deferred tax assets 265,481 341,360
Deferred tax liabilities
(46,435) (45,982)
Net deferred tax assets
219,046 295,378
The deferred tax assets relate to Cyprus operations.
The movement of the net deferred tax assets is set out below:
2021 2020
€000 €000
1 January
295,378 333,111
Deferred tax recognised in the consolidated income statement (641) (1,611)
Deferred tax recognised in the consolidated statement of comprehensive
income
127 1,787
Transfer to current tax receivables following conversion into tax credit
(75,818) (37,909)
31 December
219,046 295,378
The Group offsets income tax assets and liabilities only if it has a legally enforceable right to set-off current
income tax assets and current income tax liabilities.
The analysis of the net deferred tax charge/(credit) recognised in the consolidated income statement is set
out below:
2021 2020
€000 €000
Difference between capital allowances and depreciation 170 449
Value of in-force life insurance business 464 1,193
Other temporary differences
7 (31)
641 1,611
The analysis of the net deferred tax recognised in other comprehensive income in the consolidated
statement of comprehensive income is set out below:
2021 2020
€000 €000
Timing differences on property revaluation-income
127 1,787
During the year ended 31 December 2021 an amount of €479 thousand (2020: nil) that relates to the
balance of deferred tax arising from property revaluation, has been transferred from the deferred tax
liability - property revaluation to the deferred tax liability - other temporary differences following the
respective transfer of the related property from the category 'Property and equipment' (Note 25) to
'Investment properties (Note 22).
Income Tax Law Amendment 28 (I) of 2019
On 1 March 2019 the Cyprus Parliament adopted legislative amendments to the Income Tax Law (the 'Law')
which were published in the Official Gazette of the Republic on 15 March 2019 ('the amendments').
The main provisions of the legislation are set out below:
The amendments allow for the conversion of specific tax losses into tax credits.
The Law applies only to tax losses transferred following resolution of a credit institution within the
framework of ‘The Resolution of Credit and Other Institutions Law’.
124
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
17. Income tax (continued)
The losses are capped to the amount of Deferred Tax Assets (DTA) recognised on the balance sheet
of the audited financial statements of the acquiring credit institution in the year of acquisition. Tax
losses in excess of the capped amount could only be utilised in cases involving transfers of tax losses
in relation to tax reorganisations, completed before 1 October 2019. Post 1 October 2019, any
excess tax losses expired.
Acquired tax losses are converted into 15 equal annual instalments for credit institutions that will
enter into resolution in the future or into 11 equal annual instalments for credit institutions which
were in resolution pre 31 December 2017.
Each annual instalment can be claimed as a deductible expense in the determination of the taxable
income for the relevant year. Annual instalments are capped and cannot create additional losses for
the credit institution.
Any amount of annual instalment not utilised is converted into a tax credit (with reference to the
applicable tax rate enacted at the time of the conversion) and it can be utilised in the tax year
following the tax year to which this tax credit relates to. The tax credit can be used against a tax
liability (Corporate Income Tax Law, VAT Law or Bank levy Law) of the credit institution or any other
eligible subsidiary for group relief. Any unutilised tax credit in the relevant year is converted into a
receivable from the Cyprus Government.
In financial years where a credit institution has accounting losses the amount of the annual
instalment is recalculated. Upon recalculation, the mechanics outlined above remain unchanged.
In case a credit institution in scope goes into liquidation the total amount of unused annual
instalments are converted to tax credits and immediately become a receivable from the
Government.
A guarantee fee of 1.5% on annual tax credit is payable annually by the credit institution to the
Government.
BOC PCL has DTA that meets the requirements of the Income Tax Law Amendment 28(I) of 2019 (the
'Law'), which allow for the conversion of specific tax losses into tax credits and subsequently any such
unutilised tax credits into a receivable from the Government, relating to income tax losses transferred to
BOC PCL as a result of the acquisition of certain operations of Laiki Bank, on 29 March 2013, under ‘The
Resolution of Credit and Other Institutions Law’. The DTA recognised upon the acquisition of certain
operations of Laiki in 2013 amounted to €417 million for which BOC PCL paid a consideration as part of the
respective acquisition. Under the Law, BOC PCL could convert up to an amount of €3.3 billion tax losses to
tax credits (which led to the creation of DTA amounting to €417 million), with the conversion being based
on the tax rate applicable at the time of conversion. The period of utilisation of the tax losses which may be
converted into tax credits is eleven years following the amendment of the Law in 2019, starting from 2018
i.e. by end of 2028.
As a result of the above Law, the Group has deferred tax assets amounting to €265,364 thousand as at 31
December 2021 (2020: €341,182 thousand) that meet the requirements under this Law, the recovery of
which is guaranteed. On an annual basis an amount is converted to annual tax credit and is reclassified from
the DTA to current tax receivables.
The DTA subject to the Law is accounted for on the same basis, as described in Note 2.13.
The Group understands that, in response to concerns raised by the European Commission with regard to the
provision of state aid arising out of the treatment of such tax losses, the Cyprus Government is considering
the adoption of modifications to the Law, including requirements for an additional annual fee over and
above the 1.5% annual guarantee fee already acknowledged, to maintain the conversion of such DTAs into
tax credits.
125
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
17. Income tax (continued)
The Group, in anticipation of modifications in the Law, acknowledges that such increased annual fee may be
required to be recorded on an annual basis until expiration of such losses in 2028. The determination and
conditions of such amount will be prescribed in the Law to be amended and the amount determined by the
Government on an annual basis. Amendments to the Law will need to be adopted by the Cyprus Parliament
and published in the Official Gazette of the Republic for the amendments to be effective. The Group,
however, understands that contemplated amendments to the Law may provide that the minimum fee to be
charged will be 1.5% of the annual instalment and can range up to a maximum amount of €10,000
thousand per year. The Group estimates that such increased fees could range up to €5,300 thousand per
year (for each tax year in scope i.e. since 2018) although the Group understands that such fee may
fluctuate annually as to be determined by the Ministry of Finance. To this respect, an amount of €5,300
thousand (2020: €3,445 thousand) (Note 15) has been recorded during the year ended 31 December 2021,
to bring the total amount provided for years 2018-2021 to €21,200 thousand, being the maximum expected
increased amount for these years.
Accumulated income tax losses
The accumulated income tax losses are presented in the table below:
2021
Total income
tax losses
Income tax
losses for
which a
deferred tax
asset was
recognised
Income tax
losses for
which no
deferred tax
asset was
recognised
€000 €000 €000
Expiring within 5 years 251,448 - 251,448
Utilisation in annual instalments up to 2028
2,122,909 2,122,909 -
2,374,357 2,122,909 251,448
2020
Expiring within 5 years 648,401 - 648,401
Utilisation in annual instalments up to 2028
2,729,454 2,729,454 -
3,377,855 2,729,454 648,401
In relation to the tax losses that were transferred to BOC PCL in 2013, the income tax authorities in Cyprus
issued their tax assessments in March and April 2019. On the basis of these assessments the quantum of
Laiki Bank tax losses was approximately €5 billion and lower than the initial amount of €7.4 billion
estimated in 2013.
The tax losses in excess of the €3.3 billion transferred from Laiki Bank to BOC PCL in March 2013 cannot be
utilised by BOC PCL, in line with the March 2019 Law amendments, except in cases where there are
transfers arising due to reorganisations made prior to 1 October 2019.
18. Earnings per share
Basic and diluted profit/(loss) per share attributable to the owners
of the Company
2021 2020
Profit/(loss) for the year attributable to the owners of the Company
(€ thousand)
29,709 (171,532)
Weighted average number of shares in issue during the year, excluding
treasury shares (thousand)
446,058 446,058
Basic and diluted profit/(loss) per share (€ cent)
6.7 (38.5)
126
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
19. Cash, balances with central banks and loans and advances to banks
2021 2020
€000 €000
Cash 142,915 139,686
Balances with central banks
9,087,968 5,513,629
9,230,883 5,653,315
2021 2020
€000 €000
Loans and advances to banks 291,705 402,862
Allowance for expected credit losses
(73) (78)
291,632 402,784
An analysis of the movement of the gross carrying amount of balances with central banks is presented in
the table below:
2021 2020
Gross carrying amount €000 €000
1 January 5,513,629 4,908,487
Net increase 3,574,339 673,567
Transfer to disposal groups held for sale (Note 29)
- (68,425)
31 December
9,087,968 5,513,629
Balances with central banks are classified as Stage 1.
There was no ECL allowance on balances with central banks for the years 2021 and 2020.
An analysis of the movement of the gross carrying amount and ECL of loans and advances to banks is
presented in the table below:
2021 2020
Gross
carrying
amount
ECL
Gross
carrying
amount
ECL
€000 €000 €000 €000
1 January 402,862 (78) 320,953 (72)
Net (decrease)/increase (109,485) - 83,380 -
Disposal/dissolution of subsidiaries - - (398) -
Changes to models and inputs used for
ECL calculation (Note 16)
- 5 - (6)
Foreign exchange adjustments
(1,672) - (1,073) -
31 December
291,705 (73) 402,862 (78)
All loans and advances to banks are classified as Stage 1.
Balances with central banks include obligatory deposits for liquidity purposes as at 31 December 2021 which
amount to €166,987 thousand (2020: €158,031 thousand) (Note 42).
The credit rating analysis of balances with central banks and loans and advances to banks by independent
credit rating agencies is set out in Note 45.12.
Loans and advances to banks earn interest based on the interbank rate of the relevant term and currency.
127
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
20. Investments
2021 2020
Investments €000 €000
Investments mandatorily measured at FVPL 199,194 207,943
Investments at FVOCI 259,889 658,232
Investments at amortised cost
419,922 1,009,834
879,005 1,876,009
The amounts pledged as collateral are shown below:
2021 2020
Investments pledged as collateral €000 €000
Investments at FVOCI 488,806 14,069
Investments at amortised cost
771,352 23,036
1,260,158 37,105
Investments pledged as collateral as at 31 December 2021 related to debt securities collaterised mainly for
the additional amounts borrowed from the ECB Targeted Longer-Term Refinancing Operations (TLTRO III) in
March 2021 and June 2021 of a total nominal amount of €2 billion, as further described in Note 30.
Encumbered assets are disclosed in Note 47.
The maximum exposure to credit risk for debt securities is disclosed in Note 45.1 and the debt securities
price risk sensitivity analysis is disclosed in Note 46.
There were no reclassifications of investments during the years 2021 and 2020.
The credit rating analysis of investments is disclosed in Note 45.12.
Investments at fair value through profit or loss
Investments mandatorily
measured at FVPL
2021 2020
€000 €000
Debt and other non-equity securities 6,034 19,118
Equity securities 9,053 3,277
Mutual funds
184,107 185,548
199,194 207,943
Debt and other non-equity securities
Banks and other corporations
6,034 19,118
Unlisted
6,034 19,118
Equity securities
Listed on the Cyprus Stock Exchange - 2,155
Listed on other stock exchanges 9,053 626
Unlisted
- 496
9,053 3,277
Mutual funds
Listed on other stock exchanges 88,963 131,771
Unlisted
95,144 53,777
184,107 185,548
The debt securities which are measured at FVPL are mandatorily classified, because they failed to meet the
SPPI criteria.
128
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
20. Investments (continued)
The majority of the unlisted mutual funds relate to investments whose underlying assets are listed on stock
exchanges and are therefore presented in Level 2 hierarchy in Note 22.
Investments at FVOCI
2021 2020
€000 €000
Debt securities 733,080 656,856
Equity securities (including preference shares) 15,615 14,835
Mutual funds
- 610
748,695 672,301
2021 2020
Debt securities €000 €000
Cyprus government 408,708 382,742
Other governments 87,295 41,235
Banks and other corporations
237,077 232,879
733,080 656,856
Listed on the Cyprus Stock Exchange - 2,983
Listed on other stock exchanges
733,080 653,873
733,080 656,856
Geographic dispersion by country of issuer
Cyprus 408,708 382,742
France 66,116 51,784
Other European Union countries 143,538 90,226
Supranational organisations - 10,364
Other countries
114,718 121,740
733,080 656,856
Equity securities
Listed on the Cyprus Stock Exchange 1,752 1,483
Listed on other stock exchanges 76 81
Unlisted
13,787 13,271
15,615 14,835
An analysis of the movement of debt instruments before ECL and the changes on the ECL are presented in
the table below:
129
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
20. Investments (continued)
2021 2020
Gross debt
securities
ECL
Gross debt
securities
ECL
€000 €000 €000 €000
1 January 657,633 (777) 886,509 (699)
New assets acquired in the year 116,290 - 61,983 -
Assets derecognised and redeemed in the
year (Note 16)
(34,083) 6 (263,335) 7
Interest accrued and amortisation (2,448) - (4,170) -
Foreign exchange adjustments 14,852 - (17,410) -
Changes to models and input used for ECL
calculations (Note 16)
- 85 - (85)
Changes in fair value
(18,478) - (5,944) -
31 December
733,766 (686) 657,633 (777)
All debt securities measured at FVOCI are classified as Stage 1.
The Group irrevocably made the election to classify its equity investments as equity investments at FVOCI
on the basis that these are not held for trading. Their carrying value amounts to €15,615 thousand at 31
December 2021 and is equal to their fair value (2020: €14,835 thousand).
Equity investments at FVOCI comprise mainly investments in private Cyprus registered companies, acquired
through loan restructuring activity and specifically through debt for equity swaps.
Dividend income amounting to €1,774 thousand has been received and recognised for 2021 in other income
(2020: €223 thousand).
During the years ended 31 December 2021 and 31 December 2020 no material equity investments
measured at FVOCI have been disposed of. There were no transfers from OCI to retained earnings during
the year.
The fair value of the financial assets that have been reclassified out of FVPL to FVOCI on transition to IFRS
9, amounts to €11,066 thousand at 31 December 2021 (2020: €12,134 thousand). The fair value loss that
would have been recognised in the consolidated income statement during the year ended 31 December
2021 if these financial assets had not been reclassified as part of the transition to IFRS 9, amounts to €97
thousand (2020: gain of €28 thousand). The effective interest rate of these instruments is 1.6%-5.0%
(2020: 1.6%-5.0%) per annum and the respective interest income during the year ended 31 December
2021 amounts to €98 thousand (2020: €304 thousand).
130
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
20. Investments (continued)
Investments at amortised cost
2021 2020
€000 €000
Debt securities
1,191,274 1,032,870
Cyprus government 326,953 440,983
Other governments 223,813 132,267
Banks and other corporations 431,282 292,918
European Financial Stability Facility and European Investment Fund
209,226 166,702
1,191,274 1,032,870
Listed on the Cyprus Stock Exchange 48,463 318,141
Listed on other stock exchanges
1,142,811 714,729
1,191,274 1,032,870
Geographic dispersion by country of issuer
Cyprus 326,953 440,983
Germany 67,747 49,870
UK 25,043 33,671
France 100,388 25,646
Other European Union countries 239,781 184,804
Other countries 222,136 135,302
Supranational organisations
209,226 162,594
1,191,274 1,032,870
An analysis of changes in the gross carrying amount (before ECL) is presented in the table below:
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
€000 €000 €000 €000 €000 €000
1 January 984,739 48,981 1,033,720 779,770 49,130 828,900
New assets acquired in the year 503,089 - 503,089 513,655 - 513,655
Assets derecognised and redeemed
in the year
(348,151) - (348,151) (294,756) - (294,756)
Fair value due to hedging
relationship
(2,156) (392) (2,548) 644 (123) 521
Interest accrued and amortisation (4,744) (30) (4,774) (2,289) (26) (2,315)
Foreign exchange adjustments
10,756 - 10,756 (12,285) - (12,285)
31 December
1,143,533 48,559 1,192,092 984,739 48,981 1,033,720
An analysis of changes on the ECL is presented in the table below:
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
€000 €000 €000 €000 €000 €000
1 January (545) (305) (850) (320) (476) (796)
Assets derecognised or redeemed
(Note 16)
155 - 155 12 - 12
Change to models and inputs used
for ECL calculation (Note 16)
(332) 209 (123) (237) 171 (66)
31 December
(722) (96) (818) (545) (305) (850)
131
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
21. Derivative financial instruments
The contract amount and fair value of the derivative financial instruments is set out below:
2021 2020
Fair value Fair value
Contract
amount
Assets Liabilities
Contract
amount
Assets Liabilities
€000 €000 €000 €000 €000 €000
Trading derivatives
Forward exchange rate contracts 11,344 81 55 37,912 834 346
Currency swaps 991,117 4,388 1,342 970,645 4,458 2,832
Interest rate swaps 21,690 86 61 92,305 271 597
Currency options 83 62 21 2,628 72 302
Interest rate caps/floors
518,950 223 218 527,883 83 25
1,543,184 4,840 1,697 1,631,373 5,718 4,102
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate
swaps
700,835 1,813 30,025 877,783 18,907 39,720
Net investments - forward exchange
rate contracts and currency swaps
107,193 - 730 84,588 2 2,156
808,028 1,813 30,755 962,371 18,909 41,876
Total
2,351,212 6,653 32,452 2,593,744 24,627 45,978
The use of derivatives is an integral part of the Group’s activities. Derivatives are used to manage the
Group’s own exposure to fluctuations in interest rates and exchange rates. Derivatives are also sold to
customers as risk management products.
Credit risk for derivatives arises from the possibility of the counterparty’s failure to meet the terms of any
contract. In the case of derivatives, credit losses are a significantly smaller amount compared to the
derivatives’ notional amount. In order to manage credit risk, the Group sets derivative limits based on the
creditworthiness of the involved counterparties and uses credit mitigation techniques such as netting and
collateralisation.
Interest rate risk is explained in Note 46. The interest rate risk is managed through the use of own balance
sheet solutions such as plain vanilla interest rate swaps and interest rate options. In fair value hedges of
interest rate risk, the Group converts fixed rate assets/liabilities to floating. In cash flow hedging of interest
rate risk, the Group converts floating rate assets/liabilities to fixed.
Currency risk is explained in Note 46. In order to eliminate the risk, the Group hedges its open position by
entering into foreign exchange deals such as: foreign exchange spot, foreign exchange forwards, foreign
exchange swaps or foreign exchange options. The foreign currency risk mainly arises from customer-driven
transactions on deposits and loans and advances.
Forward exchange rate contracts are irrevocable agreements to buy or sell a specified quantity of foreign
currency on a specified future date at an agreed rate.
Currency swaps include simple currency swaps and cross-currency swaps. Simple currency swaps involve
the exchange of two currencies at the current market rate and the commitment to re-exchange them at a
specified rate upon maturity of the swap. Cross-currency swaps are interest rate swaps in which the cash
flows are in different currencies.
Interest rate swaps are contractual agreements between two parties to exchange fixed rate and floating
rate interest, by means of periodic payments, based upon a notional principal amount and the interest rates
defined in the contract.
Currency options are contracts that grant the holder the right, but not the obligation, to buy or sell currency
at a specified exchange rate during a specified period of time.
Interest rate caps/floors protect the buyer from fluctuations of interest rates above or below a specified
interest rate for a specified period of time.
132
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
21. Derivative financial instruments (continued)
The credit exposure of derivative financial instruments represents the cost to replace these contracts at the
reporting date. The exposure arising from these transactions is managed as part of the Group’s credit risk
management process for credit facilities granted to customers and financial institutions.
The contract amount of certain types of derivative financial instruments provides a basis for comparison
with other instruments recognised on the consolidated balance sheet, but does not necessarily indicate the
amounts of future cash flows involved or the current fair value of the instruments and, consequently, does
not indicate the Group’s exposure to credit or market risk.
The fair value of the derivatives can be either positive (asset) or negative (liability) as a result of
fluctuations in market interest rates and foreign exchange rates in accordance with the terms of the
relevant contract. The aggregate net fair value of derivatives may fluctuate significantly over time.
Hedge accounting
The Group elected, as a policy choice permitted by IFRS 9, to continue to apply hedge accounting in
accordance with IAS 39. The Group implements the amended IFRS 7 hedge disclosure requirements.
The Group applies fair value hedge accounting using derivatives when the required criteria for hedge
accounting are met. The Group also uses derivatives for economic hedging (hedging the changes in interest
rates, exchange rates or other risks) which do not meet the criteria for hedge accounting. As a result, these
derivatives are accounted for as trading derivatives and the gains or losses arising from revaluation are
recognised in the consolidated income statement.
Changes in the fair value of derivatives designated as fair value hedges and the fair value of the item in
relation to the risk being hedged are recognised in the consolidated income statement.
Fair value hedges
The Group uses interest rate swaps to hedge the interest rate risk arising as a result of the possible adverse
movement in the fair value of fixed rate debt securities measured at FVOCI.
Hedges of net investments
The Group’s consolidated balance sheet is affected by foreign exchange differences between the Euro and all
non-Euro functional currencies of overseas subsidiaries and other foreign operations. The Group hedges its
structural currency risk when it considers that the cost of such hedging is within an acceptable range (in
relation to the underlying risk). This hedging is effected by financing with borrowings in the same currency
as the functional currency of the overseas subsidiaries and forward exchange rate contracts.
As at 31 December 2021, deposits and forward and swap exchange rate contracts amounting to €nil and
€107,193 thousand respectively (2020: €9,988 thousand and €84,588 thousand respectively) have been
designated as hedging instruments and have given rise to a gain of €7,797 thousand (2020: loss of €23,756
thousand) which was recognised in the ‘Foreign currency translation reserve’ in the consolidated statement
of comprehensive income, against the profit or loss from the retranslation of the net assets of the overseas
subsidiaries and other foreign operations.
Gains/(losses) attributable to
hedged risk
Hedged in-
effectiveness
2021
Hedged items
Hedging
instrument
Derivatives qualifying for hedge accounting €000 €000 €000
Fair value hedges
-interest rate swaps (19,327) 19,878 (551)
Net investments
-forward exchange rate contracts
(8,422) 8,422 -
Total
(27,749) 28,300 (551)
133
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
21. Derivative financial instruments (continued)
Gains/(losses) attributable to
hedged risk
Hedged in-
effectiveness
2020
Hedged items
Hedging
instrument
€000 €000 €000
Derivatives qualifying for hedge accounting
Fair value hedges
-interest rate swaps 5,760 (5,205) (555)
Net investments
-forward exchange rate contracts
25,236 (25,236) -
Total
30,996 (30,441) (555)
The accumulated fair value adjustment arising from the hedging relationships is presented in the table
below:
Carrying amount of hedged
items
Accumulated amount of fair
value hedging adjustments
gains/(losses) on the
hedged item
2021 Assets Liabilities Assets Liabilities
Derivatives qualifying for hedge
accounting €000 €000 €000 €000
Fair value hedges - interest rate swaps
Interest rate swaps
-debt securities 746,432 - 729 -
Net investments - forward and swap
exchange rate contracts
Net assets
- 107,193 - (730)
Total
746,432 107,193 729 (730)
2020
Derivatives qualifying for hedge
accounting
Fair value hedges - interest rate swaps
Interest rate swaps
-debt securities 712,925 - 21,084 -
-subordinated loan stock - 272,152 - (1,374)
Net investments - forward and swap
exchange rate contracts
Net assets
434 84,154 - (2,158)
Total
713,359 356,306 21,084 (3,532)
For assets hedged using fair value hedges the fixed rate is 2.38% and the floating rate is 0.94% as at 31
December 2021 (2020: 2.35% and 1.03% respectively). For liabilities hedged using fair value hedges, the
fixed rate was 9.25% and the floating rate was 8.93% respectively as at 31 December 2020. There were no
liabilities hedged using fair value hedges as at 31 December 2021.
134
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
21. Derivative financial instruments (continued)
The maturity of the Group's contract amount of the derivatives is presented in the table below:
2021
On demand
and up to one
month
Between one
and three
months
Between
three months
and one year
Between one
and five
years
Over five
years
Total
contract
amount
€000 €000 €000 €000 €000 €000
Trading
derivatives
Forward
exchange rate
contracts
4,923 4,493 1,928 - - 11,344
Currency swaps 875,897 114,852 368 - - 991,117
Interest rate
swaps
- - 6,219 15,471 - 21,690
Currency options 83 - - - - 83
Interest rate
caps/floors
- - 500,000 - 18,950 518,950
880,903 119,345 508,515 15,471 18,950 1,543,184
Derivatives
qualifying for
hedge
accounting
Fair value
hedges - interest
rate swaps
44,182 41,530 101,465 247,158 266,500 700,835
Net investments
- forward
exchange rate
contracts and
currency swaps
107,193 - - - - 107,193
151,375 41,530 101,465 247,158 266,500 808,028
Total
1,032,278 160,875 609,980 262,629 285,450 2,351,212
135
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
21. Derivative financial instruments (continued)
2020
On demand
and up to one
month
Between one
and three
months
Between
three months
and one year
Between one
and five
years
Over five
years
Total
contract
amount
€000 €000 €000 €000 €000 €000
Trading
derivatives
Forward
exchange rate
contracts
17,125 15,510 5,277 - - 37,912
Currency swaps 791,644 178,227 774 - - 970,645
Interest rate
swaps
44,069 23,970 14,169 10,097 - 92,305
Currency options 2,628 - - - - 2,628
Interest rate
caps/floors
- - - 527,883 - 527,883
855,466 217,707 20,220 537,980 - 1,631,373
Derivatives
qualifying for
hedge
accounting
Fair value
hedges - interest
rate swaps
- - 30,358 653,925 193,500 877,783
Net investments
- forward
exchange rate
contracts and
currency swaps
66,849 17,739 - - - 84,588
66,849 17,739 30,358 653,925 193,500 962,371
Total
922,315 235,446 50,578 1,191,905 193,500 2,593,744
Interest rate benchmark reform
As at 31 December 2021 and 2020 the interest rate benchmarks to which BOC PCL's hedge relationships
are exposed to, are Euro Interbank Offered Rate (Euribor) and US Dollar London Interbank Offered Rate
(Libor) in relation to the cash flows of the hedging instruments. The Group has applied judgement in
relation to market expectations regarding hedging instruments. The key judgement is that the cash flows
for contracts currently indexing Interbank Offered Rate (IBOR) are expected to have broadly equivalent
cash flows upon the transition of the contracts to IBOR replacement rates.
The table below indicates the nominal amount of derivatives in hedging relationships that are subject to the
IBOR reform, analysed by interest rate basis. The derivative hedging instruments provide a close
approximation to the extent of the risk exposure BOC PCL manages through hedging relationships.
2021 2020
Interest Rate Swaps €000 €000
Euribor (3-month) 529,831 699,831
Libor USD (3-month)
171,004 177,952
Total
700,835 877,783
As at 31 December 2021, the Group’s assessment regarding the on-going transition to the new risk-free
rates (RFRs) indicates that the impact on the hedging relationships and in value terms is not significant.
Further details in relation to interest rate benchmark reform are disclosed in Note 46.
136
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement
The following table presents the carrying value and fair value of the Group's financial assets and liabilities.
2021 2020
Carrying
value
Fair value
Carrying
value
Fair value
Financial assets €000 €000 €000 €000
Cash and balances with central banks 9,230,883 9,230,883 5,653,315 5,653,315
Loans and advances to banks 291,632 289,519 402,784 402,979
Investments mandatorily measured at FVPL 199,194 199,194 207,943 207,943
Investments at FVOCI 748,695 748,695 672,301 672,301
Investments at amortised cost 1,191,274 1,196,753 1,032,870 1,050,271
Derivative financial assets 6,653 6,653 24,627 24,627
Loans and advances to customers 9,836,405 9,642,212 9,886,047 9,687,663
Life insurance business assets attributable to
policyholders
540,827 540,827 462,977 462,977
Financial assets classified as held for sale 250,370 250,370 561,462 561,462
Other financial assets
393,464 393,464 102,211 102,211
22,689,397 22,498,570 19,006,537 18,825,749
Financial liabilities
Funding from central banks and deposits by
banks
3,426,639 3,328,987 1,386,643 1,325,538
Derivative financial liabilities 32,452 32,452 45,978 45,978
Customer deposits 17,530,883 17,532,995 16,533,212 16,535,842
Loan stock 642,775 647,774 272,152 274,414
Other financial liabilities and lease liabilities
275,519 275,519 282,517 282,517
21,908,268 21,817,727 18,520,502 18,464,289
The fair value of financial assets and liabilities in the above table is as at the reporting date and does not
represent any expectations about their future value.
The Group uses the following hierarchy for determining and disclosing fair value:
Level 1: investments valued using quoted prices in active markets.
Level 2: investments valued using models for which all inputs that have a significant effect on fair value are
market observable.
Level 3: investments valued using models for which inputs that have a significant effect on fair value are not
based on market observable data.
For assets and liabilities that are recognised in the Consolidated Financial Statements at fair value, the
Group determines whether transfers have occurred between levels in the hierarchy by re-assessing
categorisation at the end of each reporting period.
The following is a description of the determination of fair value for financial instruments which are recorded
at fair value on a recurring and on a non-recurring basis and for financial instruments which are not
measured at fair value but for which fair value is disclosed, using valuation techniques. These incorporate
the Group’s estimate of assumptions that a market participant would make when valuing the instruments.
Derivative financial instruments
Derivative financial instruments valued using a valuation technique with market observable inputs are
mainly interest rate swaps, currency swaps, currency rate options, forward foreign exchange rate contracts
and interest rate collars. The most frequently applied valuation techniques include forward pricing and
swap models, using present value calculations. The models incorporate various inputs including the credit
quality of counterparties, foreign exchange spot and forward rates and interest rate curves.
137
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement (continued)
Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA)
The CVA and DVA are incorporated into derivative valuations to reflect the impact on fair value of
counterparty risk and BOC PCL’s own credit quality respectively.
The Group calculates the CVA by applying the PD of the counterparty, conditional on the non-default of the
Group, to the Group’s expected positive exposure to the counterparty and multiplying the result by the loss
expected in the event of default. Conversely, the Group calculates the DVA by applying its own PD,
conditional on the non-default of the counterparty, to the expected positive exposure of the counterparty to
the Group and multiplying the result by the loss expected in the event of default. Both calculations are
performed over the life of the potential exposure.
The expected exposure of derivatives is calculated as per the CRR and takes into account the netting
agreements where they exist. A standard LGD assumption in line with industry norms is adopted.
Alternative LGD assumptions may be adopted when both the nature of the exposure and the available data
support this.
The Group does not hold any significant derivative instruments which are valued using a valuation technique
with significant non-market observable inputs.
Investments at FVPL, investments at FVOCI and investments at amortised cost
Investments which are valued using a valuation technique or pricing models, primarily consist of unquoted
equity securities and debt securities. These assets are valued using valuation models which sometimes only
incorporate market observable data and at other times use both observable and non-observable data. The
rest of the investments are valued using quoted prices in active markets.
Loans and advances to customers
The fair value of loans and advances to customers is based on the present value of expected future cash
flows. Future cash flows have been based on the future expected loss rate per loan portfolio, taking into
account expectations for the credit quality of the borrowers. The discount rate includes components that
capture the risk-free rate per currency, funding cost, servicing cost and the cost of capital, considering the
risk weight of each loan. The discount rate used in the determination of the fair value of the loans and
advances to customers measured at FVPL during the year ended 31 December 2021 ranges from 2.34% to
8.50% (2020:1.95%-8.50%).
Customer deposits
The fair value of customer deposits is determined by calculating the present value of future cash flows. The
discount rate takes into account current market rates and the credit profile of BOC PCL. The fair value of
deposits repayable on demand and deposits protected by the Deposit Protection Guarantee Scheme are
approximated by their carrying values.
Loans and advances to banks
Loans and advances to banks with maturity over one year are discounted using an appropriate risk free rate
plus the appropriate credit spread. For short-term lending, the fair value is approximated by the carrying
value.
Deposits by banks and funding from central banks
Deposits by banks and funding from central banks with maturity over one year are discounted using an
appropriate risk-free rate plus the appropriate credit spread. For short-term lending, the fair value is
approximated by the carrying value.
Loan stock
Loan stock issuances are traded in an active market with quoted prices.
Investment properties
The fair value of investment properties is determined using valuations performed by external accredited,
independent valuers. Further information on the techniques applied is disclosed in the remainder of this
note.
Owned property
The freehold land and buildings consist of offices and other commercial properties. The fair value of the
properties is determined using valuations performed by external, accredited, independent valuers. Further
information on the techniques applied is disclosed in the remainder of this note.
138
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement (continued)
Model inputs for valuation
Observable inputs to the models for the valuation of unquoted equity and debt securities include, where
applicable, current and expected market interest rates, market expected default rates, market implied
country and counterparty credit risk and market liquidity discounts.
The following table presents the fair value measurement hierarchy of the Group's financial and non-financial
assets and liabilities recorded at fair value and financial assets and financial liabilities for which fair value is
disclosed, by level of the fair value hierarchy:
Level 1 Level 2 Level 3 Total
2021 €000 €000 €000 €000
Assets measured at fair value
Investment properties
Residential - - 11,937 11,937
Offices and other commercial properties - - 55,805 55,805
Manufacturing and industrial properties - - 28,610 28,610
Hotels - - 536 536
Land (fields and plots)
- - 20,857 20,857
- - 117,745 117,745
Investment properties held for sale
Residential - - 1,790 1,790
Offices and other commercial properties - - 2,635 2,635
Manufacturing and industrial properties
- - 896 896
- - 5,321 5,321
Freehold property
Offices and other commercial properties
- - 195,666 195,666
Freehold property held for sale
Offices and other commercial properties
- - 10,408 10,408
Loans and advances to customers measured
at FVPL
- - 281,868 281,868
Trading derivatives
Forward exchange rate contracts - 81 - 81
Currency swaps - 4,388 - 4,388
Interest rate swaps - 86 - 86
Currency options - 62 - 62
Interest rate caps/floors
- 223 - 223
- 4,840 - 4,840
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps
- 1,813 - 1,813
- 1,813 - 1,813
Investments mandatorily measured at FVPL
98,016 95,144 6,034 199,194
Investments at FVOCI
734,832 - 13,863 748,695
832,848 101,797 630,905 1,565,550
Other financial assets not measured at
fair value
Loans and advances to banks - 289,519 - 289,519
Investments at amortised cost 1,074,144 98,238 24,371 1,196,753
Loans and advances to customers
- - 9,360,344 9,360,344
1,074,144 387,757 9,384,715 10,846,616
139
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement (continued)
For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount
factor by 10% would result in a decrease of €4,647 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €784 thousand in their fair value.
For one investment included in debt securities mandatorily measured at FVPL as a result of the SPPI
assessment and categorised as Level 3 with a carrying amount of €5,534 thousand as at 31 December
2021, a change in the conversion factor by 10% would result in a change in the value of the debt securities
by €553 thousand.
For additional disclosures on sensitivity analysis of equity securities refer to Note 46.
The fair value measurement hierarchy for life insurance business assets attributable to policy holders is
disclosed in Note 24.
Level 1 Level 2 Level 3 Total
2021 €000 €000 €000 €000
Liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts - 55 - 55
Currency swaps - 1,342 - 1,342
Interest rate swaps - 61 - 61
Currency options - 21 - 21
Interest rate caps/floors
- 218 - 218
- 1,697 - 1,697
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps - 30,025 - 30,025
Net investments-forward exchange rate
contracts and currency swaps
- 730 - 730
- 30,755 - 30,755
- 32,452 - 32,452
Other financial liabilities not measured
at fair value
Funding from central banks - 2,950,646 - 2,950,646
Deposits by banks - 378,341 - 378,341
Customer deposits - - 17,532,995 17,532,995
Loan stock
647,774 - - 647,774
647,774 3,328,987 17,532,995 21,509,756
140
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement (continued)
Level 1 Level 2 Level 3 Total
2020 €000 €000 €000 €000
Assets measured at fair value
Investment properties
Residential - - 16,735 16,735
Offices and other commercial properties - - 57,041 57,041
Manufacturing and industrial properties - - 35,326 35,326
Hotels - - 626 626
Land (fields and plots)
- - 18,360 18,360
- - 128,088 128,088
Investment properties held for sale
Manufacturing and industrial properties
- - 1,248 1,248
Freehold property
Offices and other commercial properties
- - 202,146 202,146
Freehold property held for sale
Offices and other commercial properties
- - 10,408 10,408
Loans and advances to customers measured
at FVPL
- - 289,861 289,861
Trading derivatives
Forward exchange rate contracts - 834 - 834
Currency swaps - 4,458 - 4,458
Interest rate swaps - 271 - 271
Currency options - 72 - 72
Interest rate caps/floors
- 83 - 83
- 5,718 - 5,718
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps - 18,907 - 18,907
Net investments-forward exchange rate
contracts and currency swaps
- 2 - 2
- 18,909 - 18,909
Investments mandatorily measured at FVPL
134,918 53,347 19,678 207,943
Investments at FVOCI
655,813 2,984 13,504 672,301
790,731 80,958 664,933 1,536,622
Other financial assets not measured at
fair value
Loans and advances to banks - 402,979 - 402,979
Investments at amortised cost 695,666 321,612 32,993 1,050,271
Loans and advances to customers
- - 9,397,802 9,397,802
695,666 724,591 9,430,795 10,851,052
For loans and advances to customers measured at FVPL categorised as Level 3, an increase in the discount
factor by 10% would result in a decrease of €5,027 thousand in their fair value and a decrease in the
discount factor by 10% would result in an increase of €1,681 thousand in their fair value.
For one investment included in debt securities mandatorily measured at FVPL as a result of the SPPI
assessment and categorised as Level 3 (Note 20) with a carrying amount of €18,618 thousand as at 31
December 2020, a change in the conversion factor by 10% would result in a change in the value of the debt
securities by €1,862 thousand.
141
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement (continued)
Level 1 Level 2 Level 3 Total
2020 €000 €000 €000 €000
Liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts - 346 - 346
Currency swaps - 2,832 - 2,832
Interest rate swaps - 597 - 597
Currency options - 302 - 302
Interest rate caps/floors
- 25 - 25
- 4,102 - 4,102
Derivatives qualifying for hedge accounting
Fair value hedges-interest rate swaps - 39,720 - 39,720
Net investments-forward exchange rate
contracts and currency swaps
- 2,156 - 2,156
- 41,876 - 41,876
- 45,978 - 45,978
Other financial liabilities not measured
at fair value
Funding from central banks - 992,494 - 992,494
Deposits by banks - 333,044 - 333,044
Customer deposits - - 16,535,842 16,535,842
Loan stock
274,414 - - 274,414
274,414 1,325,538 16,535,842 18,135,794
The cash and balances with central banks are financial instruments whose carrying value is a reasonable
approximation of fair value, because they are mostly short-term in nature or are repriced to current market
rates frequently. The carrying value of other financial assets and other financial liabilities and assets
classified as held for sale is a close approximation of their fair value and they are categorised as Level 3.
During the year ended 31 December 2021 and 2020 there were no significant transfers between Level 1 and
Level 2.
142
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement (continued)
Movements in Level 3 assets measured at fair value
Transfers from Level 3 to Level 2 occur when the market for some securities becomes more liquid, which eliminates the need for the previously required
significant unobservable valuation inputs. Following a transfer to Level 2 the instruments are valued using valuation models incorporating observable market
inputs. Transfers into Level 3 reflect changes in market conditions as a result of which instruments become less liquid. Therefore, the Group requires significant
unobservable inputs to calculate their fair value.
The movement in Level 3 assets which are measured at fair value is presented below:
2021 2020
Investment
properties
Investment
properties
held for sale
Own use
properties
Own use
properties
held for sale
Loans and
advances to
customers
Financial
instruments
Investment
properties
Investment
properties
held for sale
Own use
properties
Own use
properties
held for sale
Loans and
advances to
customers
Financial
instruments
€000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000 €000
1 January
128,088 1,248 202,146 10,408 289,861 33,182 136,197 - 235,277 - 369,293 38,507
Additions 2,774 - 857 - - 396 2,649 - 303 - - -
Disposals (10,425) (1,656) - - - (903) (6,674) - (159) - - -
Transfers from investment
properties/own use properties to non-
current assets and disposal groups
held for sale (Note 29)
(5,729) 5,729 - - - - (1,248) 1,248 (10,408) 10,408 - -
Transfers from own use properties to
investment properties (Note 25)
5,616 - (5,616) - - - - - - - - -
Transfers from/(to) stock of property
(Note 27)
- - - - - - 74 - (21,805) - - -
Conversion of instruments into
common shares
- - - - - (18,618) - - - - - -
Depreciation charge for the year - - (2,129) - - - - - (2,612) - - -
Fair value (losses)/gains (2,783) - 408 - - 5,840 (2,055) - 1,550 - - (4,109)
Net (losses)/gains on loans and
advances to customers measured at
FVPL
(Note 11)
- - - - (17,292) - - - - - 3,606 -
Derecognition of loans - - - - (3,083) - - - - - (96,254) -
Interest on loans (Note 7) - - - - 12,382 - - - - - 13,216 -
Foreign exchange adjustments
204 - - - - - (855) - - - - (1,216)
31 December
117,745 5,321 195,666 10,408 281,868 19,897 128,088 1,248 202,146 10,408 289,861 33,182
143
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement (continued)
Valuation policy and sensitivity analysis
Investment properties, investment properties held for sale and own use properties
The valuation technique mainly applied by the Group is the market comparable approach, adjusted for
market and property specific conditions. In certain cases, the Group also utilises the income capitalisation
approach. The key inputs used for the valuations of the investment properties, investment properties held
for sale and own use properties are presented in the tables below:
144
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of investment properties and investment properties held for sale
Type and country 2021
Estimated
rental value
per m
2
per
annum
Estimated
building cost
per m
2
Yield
Estimated fair
value per m
2
Estimated
land value per
m
2
Land Building area
Age of
building
Residential
€000
m
2
m
2
Years
Cyprus 9,577 €35-€100 €134-€1,370 4.5%-5% €380-€2,297 €110-€800 89-1,203 19-559 7-48
Greece
4,150
€3-€115 €131-€2,296 0.7%-8.4% €50-€1,892 €3-€2,437 5,147 51-825 10-49
13,727
Offices and other commercial properties
Cyprus 54,553 €25-€352 €1,172 4%-8% €498-€6,981 €580-€5,000 152-35,413 16-2,533 9-76
Greece
3,742 €19-€272 €207-€3,615 5.3%-11.3% €74-€3,615 €258 8,582 6-4,692 17-63
Russia
145
n/a €107 n/a €79 €77 1,792-26,046 212-3,288 12-18
58,440
Manufacturing and industrial
Cyprus 21,822 €14-€67 €427 3.5%-7% €305-€1,646 €550 2,202-15,965 743-7,500 9-37
Greece
7,684
€43 €71-€450 5.2%-10% €8-€425 €399 57-34,495 349-5,858 12-83
29,506
Hotels
Russia
536
n/a €356 n/a €356 n/a n/a 7,436 16
Land (fields and plots)
Cyprus 17,701 n/a n/a n/a €550 €550-€1,127 2,316-29,398 n/a n/a
Russia
3,156
n/a n/a n/a €15 €15-€23 58,600-689,000 n/a n/a
20,857
Total
123,066
Analysis of own use properties and own use properties held for sale
Type and country 2021
Estimated
rental value
per m
2
per
annum
Estimated
building cost
per m
2
Yield
Estimated fair
value per m
2
Estimated
land value per
m
2
Land Building area
Age of
building
Offices and other commercial properties
€000
m
2
m
2
Years
Cyprus
206,074
€24-€277 €580-€1,855 5.8%-6% €14-€6,164 €70-€2,274 390-598,767 122-11,233 14-78
Total
206,074
145
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of investment properties and investment properties held for sale
Type and country 2020
Estimated
rental value
per m
2
per
annum
Estimated
building cost
per m
2
Yield
Estimated fair
value per m
2
Estimated
land value per
m
2
Land Building area
Age of
building
Residential
€000
m
2
m
2
Years
Cyprus 13,013 €29-€86 €134-€1,370 n/a €380-€2,206 €110-€900 89-1,203 19-1,356 6-130
Greece
3,722
€3-€86 €136-€2,132 2.14%-9.91% €45-€1,455 €3-€1,176 4-5,147 44-825 12-63
16,735
Offices and other commercial properties
Cyprus 52,021 €26-€250 n/a 4%-8% €550-€7,103 €550-€1,050 150-35,413 16-9,369 10-75
Greece 4,774 €15-€259 €157-€3,483 5.31%-10.07% €52-€1,842 €19-€259 5-8,582 6-4,692 16-62
Russia
246
n/a €19-€448 n/a €10-€153 €2-€70 1,460-26,046 212-15,898 n/a
57,041
Manufacturing and industrial
Cyprus 26,908 €21-€67 €448 5%-6% €350-€1,602 n/a 1,593-15,965 421-7,340 8-36
Greece 9,627 €1-€37 €80-€603 1.79%-10.57% €13-€396 €3-€302 56-34,495 349-5,858 11-82
Russia
39
n/a €8-€357 n/a €5-€185 €5-€86 2,162-10,500 304-1,246 n/a
36,574
Hotels
Russia
626
n/a €324 n/a €324 n/a n/a 7,436 15
Land (fields and plots)
Cyprus 18,095 n/a €1,000-€1,250 n/a €524-€1,002 €524-€1,002 2,316-29,398 n/a n/a
Greece
49 €1 n/a 6.43% €12 €12 3,988 n/a n/a
Russia
216
n/a n/a n/a €13 €13 58,600 n/a n/a
18,360
Total
129,336
146
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
22. Fair value measurement (continued)
Valuation policy and sensitivity analysis (continued)
Analysis of own use properties and own use properties held for sale
Type and country 2020
Estimated
rental value
per m
2
per
annum
Estimated
building cost
per m
2
Yield
Estimated fair
value per m
2
Estimated
land value per
m
2
Land Building area
Age of
building
Offices and other commercial properties
€000
m
2
m
2
Years
Cyprus
212,554
€23-€277 €750-€1,855 5%-6% €14-€6,163 €70-€3,171 390-598,767 122-11,233 13-78
Total
212,554
Sensitivity analysis
Most of the Group’s property valuations have been classified as Level 3. Significant increases/decreases in estimated values per square meter for properties
valued with the comparable approach or significant increases/decreases in estimated rental values or yields for properties valued with the income capitalisation
approach could result in a significantly higher/lower fair value of the properties.
147
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
23. Loans and advances to customers
2021 2020
€000 €000
Gross loans and advances to customers at amortised cost 9,840,535 10,400,603
Allowance for ECL for impairment of loans and advances to customers (Note
45.7)
(285,998) (804,417)
9,554,537 9,596,186
Loans and advances to customers measured at FVPL
281,868 289,861
9,836,405 9,886,047
Loans and advances to customers pledged as collateral are disclosed in Note 47.
Additional analysis and information regarding credit risk and analysis of the allowance for ECL of loans and
advances to customers are set out in Note 45.
24. Life insurance business assets attributable to policyholders
2021 2020
€000 €000
Equity securities 1,098 898
Debt securities 36,400 43,064
Mutual funds 441,410 378,511
Bank deposits and other receivables
61,919 40,504
540,827 462,977
Property
10,970 11,210
551,797 474,187
Financial assets of life insurance business attributable to policyholders are classified as investments at FVPL.
Bank deposits and other receivables include other financial receivables of €3,079 thousand (2020: €3,074
thousand).
In addition to the above assets, the life insurance subsidiary of the Group holds shares of the Company, as
part of the assets attributable to policyholders with a carrying value as at 31 December 2021 of €143
thousand (2020: €101 thousand). Such shares are presented in the Consolidated Financial Statements as
treasury shares (Note 35).
The analysis of the financial assets of life insurance business attributable to policyholders measured at fair
value by level is presented below:
Level 1 Level 2 Level 3 Total
2021 €000 €000 €000 €000
Equity securities 1,098 - - 1,098
Debt securities 17,287 - 19,113 36,400
Mutual funds
438,258 - 3,152 441,410
456,643 - 22,265 478,908
2020
Equity securities 898 - - 898
Debt securities 16,778 5,991 20,295 43,064
Mutual funds
374,673 698 3,140 378,511
392,349 6,689 23,435 422,473
Bank deposits are financial instruments whose carrying amount is a reasonable approximation of fair value,
because they are short-term in nature or are repriced to current market rates frequently.
148
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
24. Life insurance business assets attributable to policyholders (continued)
The movement of financial assets classified as Level 3 is presented below:
2021 2020
€000 €000
1 January 23,435 25,646
Unrealised losses recognised in the consolidated income statement
(1,170) (2,211)
31 December
22,265 23,435
During years 2021 and 2020 there were no significant transfers between Level 1 and Level 2.
25. Property and equipment
Property Equipment Total
2021 €000 €000 €000
Net book value at 1 January 251,023 21,451 272,474
Additions 1,546 4,741 6,287
Revaluation 408 - 408
Transfers to investment properties (Note 22) (5,616) - (5,616)
Disposals and write-offs (7) (134) (141)
Depreciation charge for the year (Note 15) (10,489) (5,824) (16,313)
New leases (Note 43) 1,148 - 1,148
Derecognition of RoU assets (Note 43)
(6,117) - (6,117)
Net book value at 31 December
231,896 20,234 252,130
1 January 2021
Cost or valuation 305,645 139,495 445,140
Accumulated depreciation
(54,622) (118,044) (172,666)
Net book value
251,023 21,451 272,474
31 December 2021
Cost or valuation 296,406 141,220 437,626
Accumulated depreciation
(64,510) (120,986) (185,496)
Net book value
231,896 20,234 252,130
149
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
25. Property and equipment (continued)
2020
Net book value at 1 January 267,684 20,370 288,054
Additions 1,896 8,225 10,121
Revaluation 1,550 - 1,550
Transfers to stock of property (Note 27) (21,805) - (21,805)
Transfer to non-current assets and disposal groups held for
sale (Note 29)
(10,408) - (10,408)
Re-assessment of RoU Asset (Note 43) 26,936 - 26,936
Derecognition of RoU Asset (Note 43)
(2,399) - (2,399)
Disposals and write-offs
(191) (160) (351)
Depreciation charge for the year (Note 15)
(12,240) (6,984) (19,224)
Net book value at 31 December
251,023 21,451 272,474
1 January 2020
Cost or valuation 317,994 140,681 458,675
Accumulated depreciation
(50,310) (120,311) (170,621)
Net book value
267,684 20,370 288,054
31 December 2020
Cost or valuation 305,645 139,495 445,140
Accumulated depreciation
(54,622) (118,044) (172,666)
Net book value
251,023 21,451 272,474
The net book value of the Group's property comprises:
2021 2020
€000 €000
Freehold property 195,666 202,146
Improvements on leasehold property 2,649 2,807
RoU asset (Note 43)
33,581 46,070
Total
231,896 251,023
Freehold property includes land amounting to €78,591 thousand (2020: €81,221 thousand) for which no
depreciation is charged.
The Group’s policy is to revalue its properties periodically (between 3 to 5 years) but more frequent
revaluations may be performed where there are significant and volatile movements in values. The Group
performed revaluations as at 31 December 2020. The valuations were carried out by independent qualified
valuers, on the basis of market value using observable prices and/or recent market transactions depending
on the location of the property. Details on valuation techniques and inputs are presented in Note 22.
There were no charges against the freehold property of the Group as at 31 December 2021 (2020: the
freehold property against which charges existed was transferred to stock of property as at 31 December
2020).
The net book value of freehold property, on a cost less accumulated depreciation basis, as at 31 December
2021 would have amounted to €134,000 thousand (2020: €135,657 thousand).
150
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
26. Intangible assets
Computer
software
In-force life
insurance
business
Total
2021 €000 €000 €000
Net book value at 1 January 59,080 126,176 185,256
Additions 16,053 - 16,053
Increase in value of in-force life insurance business (Note
12)
- 3,714 3,714
Disposals and write-offs (2,374) - (2,374)
Amortisation charge for the year (Note 15)
(18,615) - (18,615)
Net book value at 31 December
54,144 129,890 184,034
1 January 2021
Cost 224,722 126,176 350,898
Accumulated amortisation and impairment
(165,642) - (165,642)
Net book value
59,080 126,176 185,256
31 December 2021
Cost 236,526 129,890 366,416
Accumulated amortisation and impairment
(182,382) - (182,382)
Net book value
54,144 129,890 184,034
Computer software includes acquired computer software and internally developed computer software.
Computer
software
In-force life
insurance
business
Total
2020 €000 €000 €000
Net book value at 1 January 62,313 116,633 178,946
Additions 15,129 - 15,129
Increase in value of in-force life insurance business (Note
12)
- 9,543 9,543
Disposals and write-offs (99) - (99)
Amortisation charge for the year (Note 15)
(18,263) - (18,263)
Net book value at 31 December
59,080 126,176 185,256
1 January 2020
Cost 209,692 116,633 326,325
Accumulated amortisation and impairment
(147,379) - (147,379)
Net book value
62,313 116,633 178,946
31 December 2020
Cost 224,722 126,176 350,898
Accumulated amortisation and impairment
(165,642) - (165,642)
Net book value
59,080 126,176 185,256
151
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
26. Intangible assets (continued)
Valuation of in-force life insurance business
The actuarial assumptions made to determine the value of in-force life insurance business relate to future
mortality, redemptions, level of administration and selling expenses and investment returns. The main
assumptions used in determining the value of the in-force business are:
2021 2020
Discount rate (after tax) 10.0% 10.0%
Return on investments 5.0% 5.0%
Expense inflation 3.5% 3.5%
Smokers M: 68% A67/70 M: 68% A67/70
Non-Smokers M: 48.25% A67/70 M: 48.25% A67/70
Mortality assumption* Smokers
F: 68% A67/70
rated down
by 4 years
F: 68% A67/70
rated down
by 4 years
Non-Smokers
F: 48.25% A67/70
rated down
by 4 years
F: 48.25% A67/70
rated down
by 4 years
* The Group uses A67/70 UK standard mortality table in setting the mortality assumption, since the Group’s
own claim experience is not sufficient to allow the development of its own mortality table. To reflect the
Group’s specific claims experience more accurately, a percentage is applied on the A67/70 UK standard
mortality table.
27. Stock of property
The carrying amount of stock of property is determined as the lower of cost and net realisable value.
Impairment is recognised if the net realisable value is below the cost of the stock of property. During 2021
an impairment loss of €46,775 thousand (2020: €37,593 thousand) was recognised in 'Impairment net of
reversals of non-financial assets' in the consolidated income statement. At 31 December 2021, stock of
€519,978 thousand (2020: €523,927 thousand) is carried at net realisable value. Additionally, at 31
December 2021 stock of property with a carrying amount of €116,987 thousand (2020: €104,149
thousand) is carried at approximately its fair value less costs to sell.
The stock of property includes residential properties, offices and other commercial properties,
manufacturing and industrial properties, hotels, land (fields and plots) and properties under construction.
There is no stock of property pledged as collateral for central bank funding facilities under Eurosystem
monetary policy operations.
The carrying amount of the stock of property is analysed in the tables below:
2021 2020
€000 €000
Net book value at 1 January 1,349,609 1,377,453
Additions 34,347 121,168
Disposals (123,520) (75,478)
Transfers to investment properties (Note 22) - (74)
Transfers from own use properties (Note 25) - 21,805
Transfers to disposal group (Note 29) (101,978) (57,525)
Impairment (Note 16) (46,775) (37,593)
Foreign exchange adjustments
(79) (147)
Net book value at 31 December
1,111,604 1,349,609
152
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
27. Stock of property (continued)
As at 31 December 2021 there are charges against stock of property of the Group with carrying value
€21,015 thousand (2020: €21,805 thousand).
The table below shows the result on the disposal of stock of property in the year:
2021 2020
€000 €000
Net proceeds
136,816 83,667
Carrying value of stock of property disposed of
(123,520) (75,478)
Net gains on disposal of stock of property
13,296 8,189
The carrying value of the stock of property transferred to non-current assets and disposal groups held for
sale as at the transfer date (Note 29) amounted to €101,978 thousand.
Analysis by type and country Cyprus Greece Romania Total
2021 €000 €000 €000 €000
Residential properties 74,248 18,350 32 92,630
Offices and other commercial properties 163,789 19,462 - 183,251
Manufacturing and industrial properties 33,170 15,972 43 49,185
Hotels 24,619 456 - 25,075
Land (fields and plots)
755,663 4,986 814 761,463
Total
1,051,489 59,226 889 1,111,604
2020 €000 €000 €000 €000
Residential properties 144,915 20,214 109 165,238
Offices and other commercial properties 189,172 21,302 5,135 215,609
Manufacturing and industrial properties 47,647 19,839 49 67,535
Hotels 24,684 465 - 25,149
Land (fields and plots)
868,615 5,694 1,769 876,078
Total
1,275,033 67,514 7,062 1,349,609
28. Prepayments, accrued income and other assets
2021 2020
€000 €000
Financial assets
Debtors 36,540 39,011
Receivable relating to tax
4,558 4,706
Deferred purchase payment consideration
299,766 -
Other assets
52,600 58,494
393,464 102,211
Non-financial assets
Reinsurers’ share of insurance contract liabilities (Note 32) 55,323 53,479
Current tax receivable 124,267 48,198
Prepaid expenses 756 509
Other assets
42,409 45,480
222,755 147,666
616,219 249,877
153
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
28. Prepayments, accrued income and other assets (continued)
An analysis of changes in the gross carrying amount of the financial assets included in prepayments,
accrued income and other assets is presented in the table below:
Stage 1 Stage 2 Stage 3
Simplified
method
Total
2021 €000 €000 €000 €000 €000
1 January 81,508 - 35,031 13,865 130,404
Net increase
295,904 - 2,126 406 298,436
31 December
377,412 - 37,157 14,271 428,840
2020
1 January 102,098 23,779 33,724 14,197 173,798
Net (decrease)/increase
(20,590) (23,779) 1,307 (332) (43,394)
31 December
81,508 - 35,031 13,865 130,404
An analysis of the changes on the ECL of the above financial assets is presented in the table below:
Stage 1 Stage 2 Stage 3
Simplified
method
Total
2021 €000 €000 €000 €000 €000
1 January - - 29,372 1,063 30,435
Changes to models and
inputs used for ECL
calculations
2,557 - 2,389 (5) 4,941
31 December
2,557 - 31,761 1,058 35,376
Stage 1 Stage 2 Stage 3
Simplified
method
Total
2020 €000 €000 €000 €000 €000
1 January - - 28,464 980 29,444
Changes to models and
inputs used for ECL
calculations
- - 908 83 991
31 December
- - 29,372 1,063 30,435
There were no financial assets measured at FVPL as at 31 December 2021 (2020: €2,242 thousand).
On the completion date of the sale of Project Helix 2 (the ‘Transaction’) as described in Note 29, the Group
has recognised an amount of €381,567 thousand in other financial assets, which represented the fair value
of the deferred consideration receivable from the Transaction (the ‘DPP’). This amount is payable in four
instalments up to December 2025 and each instalment carries interest up to each payment date. The first
instalment in the amount of €84,579 thousand was received in December 2021. An amount of €5,335
thousand, which represents the interest income on DPP has been recognised in the Consolidated Income
Statement for the year ended 31 December 2021 within 'Interest income-Financial assets at amortised cost-
Other financial assets' (Note 7). There are no other conditions attached. An amount of €13,983 thousand
which represents the effect of discounting the DPP at the date of derecognition of the loan portfolio was
recorded as part of the transaction within 'Credit losses to cover credit risk on loans and advances to
customers'. The DPP is classified as Stage 1 as at 31 December 2021.
During 2021, credit losses of €5,931 thousand were recognised in relation to prepayments, accrued income
and other financial assets. This includes ECL losses of €4,941 thousand (of which €2,557 thousand relate to
12-months ECL of the DPP), €1,178 thousand write-offs and €188 thousand reversal of impairments. During
2020, credit losses of €991 thousand were recognised in relation to prepayments, accrued income and other
financial assets.
154
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
29. Non-current assets and disposal groups held for sale
The following non-current assets and disposal groups were classified as held for sale as at 31 December
2021 and 2020:
2021 2020
€000 €000
Disposal group 1 340,622 -
Disposal group 2 7,921 -
Disposal group 3 - 387,990
Disposal group 4
- 224,476
Disposal group 5
- 7,769
Freehold property (Note 25) 10,408 10,408
Other exposures held by Serbian subsidiary
- 288
358,951 630,931
2021 2020
Disposal
Group 1
Disposal
Group 2
Disposal
Group 3
Disposal
Group 4
Disposal
Group 5
€000 €000 €000 €000 €000
Gross loans and advances to customers
543,663 12,126 820,429 488,777 32,049
Allowance for ECL for impairment of loans and
advances to customers (Note 45.7)
(300,608) (4,811) (510,310) (313,628) (24,280)
243,055 7,315 310,119 175,149 7,769
Stock of property (Note 27)
92,246 606 32,490 25,035 -
Investment property (Note 22)
5,321 - - 1,248 -
Cash (Note 42)
- - 45,381 23,044 -
340,622 7,921 387,990 224,476 7,769
Disposal Group 1
Disposal group 1 comprises a portfolio of loans and advances to customers and a property portfolio
(comprising stock of property and investment property) known as Project Helix 3 ('Project Helix 3' or the
'Helix 3 Transaction').
In November 2021, the Group reached an agreement for the sale of Project Helix 3 with Pacific Investment
Management Company LLC ('PIMCO'). The Group will dispose Project Helix 3 through the transfer of the
portfolio to a licensed Cypriot Credit Acquiring Company (the CyCAC) by BOC PCL. The shares of the CyCAC
will be subsequently acquired by certain funds affiliated with PIMCO.
The gross consideration for the transaction amounts to approximately €385 million, before transaction and
other costs, payable at completion. An amount of €19,225 thousand was received as a deposit shortly after
signing of the agreement (Note 34). The gross book value of the loans and advances to customers
amounted to €550 million and the carrying value of the property portfolio amounted to €102 million as at
30 September 2021 (the reference date).
The completion of the Helix 3 Transaction is currently estimated to occur in the first half of 2022 and
remains subject to a number of conditions, including customary regulatory and other approvals. The
disposal group has been classified as held for sale since 30 September 2021 as management is committed
to sell it and has proceeded with an active programme to complete this plan.
Disposal Group 2
Disposal group 2 comprises a portfolio of loans and advances to customers and stock of properties in
Romania known as Project Sinope ('Project Sinope' or the 'Sinope Transaction').
In December 2021, the Group entered into an agreement for the sale of Project Sinope. The gross book
value of the loans and advances to customers amounted to €12 million and the carrying value of the stock
of properties in Romania amounted to €0,6 million as at 31 December 2021.
155
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
29. Non-current assets and disposal groups held for sale (continued)
The completion of the Sinope Transaction is currently estimated to occur in the first half of 2022 and
remains subject to the necessary customary approvals. The disposal group has been classified as held for
sale as at 31 December 2021 as management is committed to sell it and has proceeded with an active
programme to complete this plan.
Disposal groups 3 and 4
Disposal group 3 comprised a portfolio of loans and advances to customers (the 'Portfolio 2A') and other
assets (comprising stock of property and cash already received since the reference date of Portfolio 2A
being 30 September 2019) known as Project Helix 2A ('Helix 2A'), classified as held for sale on 30 June
2020.
Disposal group 4 comprised a portfolio of loans and advances to customers (the 'Portfolio 2B') and other
assets (comprising stock of property, investment property and cash already received since the reference
date of Portfolio 2B being 30 September 2019) known as Project Helix 2B ('Helix 2B'), classified as held for
sale on 31 December 2020.
In August 2020 and January 2021, the Group reached agreement for the sale of the Portfolio 2A and
Portfolio 2B respectively with PIMCO. The Group disposed of Project Helix 2 through the transfer of the
portfolios 2A and 2B to a licensed Cypriot Credit Acquiring Company (the CyCAC) by BOC PCL. The shares of
the CyCAC were subsequently acquired by certain funds affiliated with PIMCO, the purchaser of Helix 2. The
Transaction was completed on 28 June 2021 and as at the date of completion of the sale, the total gross
book value of the loans and advances to customers amounted to €1,287 million (net book value €436
million) and the carrying value of the stock of properties amounted to €73 million.
The gross consideration for the transaction amounted to approximately €560 million, of which €165 million
had been received in cash by the completion (including deposit received). The remaining amount is payable
in four instalments up to December 2025 without any conditions attached of which €85 million were
received in December 2021 (Note 28). The consideration reflects adjustments resulting from, inter alia, loan
repayments received on the Portfolios since the reference date of 30 September 2019. The consideration
can be increased through an earnout arrangement, depending on the performance of each of the Portfolios.
The net consideration for the transaction after transaction costs and other adjustments upon completion,
corresponds to the net book value of the loans and advances to customers and the carrying value of the
stock of properties as at the date of completion of the sale.
Disposal group 5
Disposal group 5 comprised loans and advances to customers of Project Helix tail, which related to a
portfolio of credit facilities related to Project Helix (a portfolio of loans and advances to customers for which
the sale was completed in June 2019) with a carrying value of €7,769 thousand as at 31 December 2020.
The disposal group was first classified as held for sale as at 31 December 2019. The Group has reclassified
Project Helix tail from 'Non-current assets and disposal groups held for sale' to 'Loans and advances to
customers', since 30 June 2021 when the criteria of IFRS 5 were no longer met.
Further analysis of the loans and advances to customers, included in these disposal groups, is disclosed in
Note 45.3.
Freehold property
Freehold property classified as held for sale as at 31 December 2021 and 2020 relates to properties which
management is committed to sell and proceeded with an active programme to complete this plan. The
disposal is expected to be completed within 12 months from the reporting date. Freehold property classified
as held for sale is measured at fair value less cost to sell.
Other exposures held by Serbian subsidiary
The portfolio held by Serbian subsidiary classified as held for sale as at 31 December 2020 related to
properties in Serbia. The properties which had a carrying value of €288 thousand, were disposed during the
year ended 31 December 2021 for a total consideration of €730 thousand.
156
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
30. Funding from central banks
Funding from central banks comprises funding from the ECB under Eurosystem monetary policy operations
as set out in the table below:
2021 2020
€000 €000
Targeted Longer-Term Refinancing Operations (TLTRO IΙI)
2,969,600 994,694
As at 31 December 2021, ECB funding amounted to €3 billion (2020: €1 billion) borrowed from various
TLTRO III operations.
The interest rate that will be applicable to the TLTRO III funding will depend on the eligible net lending
during the specified periods laid out in the terms of the ECB operation.
In recognition of the challenging credit environment during the pandemic period, the Governing Council of
the ECB announced that the interest rate on all outstanding TLTRO III operations for the periods from 24
June 2020 to 23 June 2021 and 24 June 2021 to 23 June 2022 will be 50 basis points below the average
rate applicable in the Eurosystem’s main refinancing operations over the same period. The interest rate on
the main refinancing operations is currently at 0%. For the counterparties whose eligible net lending
reaches the lending performance thresholds, the interest rate applied over the periods from 24 June 2020
to 23 June 2021 and 24 June 2021 to 23 June 2022 on all TLTRO III operations outstanding will be 50 basis
points below the average interest rate on the deposit facility prevailing over the same period, and in any
case not higher than minus 1%. The deposit facility rate is currently minus 0.5%. In calculating the
applicable interest BOC PCL follows a discrete approach by applying the estimated interest rate applicable
for each period. BOC PCL has exceeded the eligible net lending benchmark applicable for the first period of
24 June 2020 to 23 June 2021 and was entitled to the beneficial rate of minus 1%. Based on internal
estimations (subject to confirmation from CBC), BOC PCL has also exceeded the eligible net lending
benchmark and therefore expects to be entitled to the beneficial rate of minus 1% for the period June
2021-June 2022.
The maturity of TLTRO III is three years from the settlement of each operation but there is an option
available to early repay or reduce the amounts borrowed before their final maturity.
Details on encumbered assets related to the above funding facilities are disclosed in Note 47.
157
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
31. Customer deposits
2021 2020
€000 €000
By type of deposit
Demand 9,221,791 8,149,688
Savings 2,423,086 1,970,975
Time or notice
5,886,006 6,412,549
17,530,883 16,533,212
By geographical area
Cyprus 11,992,960 11,391,316
Greece 1,906,854 1,890,915
United Kingdom 713,621 648,172
Romania 54,306 50,160
Russia 661,820 592,650
Ukraine 276,248 277,631
Belarus 55,738 37,074
Other Countries
1,869,336 1,645,294
17,530,883 16,533,212
Deposits by geographical area are based on the country of passport of the Ultimate Beneficial Owner.
2021 2020
€000 €000
By currency
Euro 15,736,030 14,929,662
US Dollar 1,373,584 1,199,069
British Pound 312,918 288,102
Russian Rouble 28,539 28,618
Swiss Franc 10,865 9,901
Other currencies
68,947 77,860
17,530,883 16,533,212
2021 2020
By customer sector €000 €000
Corporate 1,117,148 1,037,430
Global corporate 631,002 607,467
SMEs 866,860 832,576
Retail 11,051,397 10,525,819
Restructuring
– Corporate 21,658 27,889
– SMEs 13,091 16,688
– Retail other 9,862 10,561
Recoveries
– Corporate 1,383 3,251
International banking services 3,500,183 3,180,061
Wealth management
318,299 291,470
17,530,883 16,533,212
158
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
32. Insurance liabilities
2021 2020
Gross
Reinsurers'
share
Net Gross
Reinsurers'
share
Net
Life insurance
€000 €000 €000 €000 €000 €000
Life insurance contract
liabilities
672,973 (32,714) 640,259 608,591 (29,775) 578,816
Non-life insurance
Provision for unearned
premiums
27,565 (9,988) 17,577 26,178 (9,250) 16,928
Other liabilities
Claims outstanding 35,629 (12,621) 23,008 36,756 (14,454) 22,302
Unexpired risks reserve
34 - 34 78 - 78
Non-life insurance contract
liabilities
63,228 (22,609) 40,619 63,012 (23,704) 39,308
736,201 (55,323) 680,878 671,603 (53,479) 618,124
Reinsurers' share of insurance contract liabilities and other reinsurance balances receivable are included in
'Prepayments, accrued income and other assets' (Note 28).
Life insurance contract liabilities
The movement of life insurance contract liabilities and reinsurance assets during the year is analysed as
follows:
2021 2020
Gross
Reinsurers'
share
Net Gross
Reinsurers'
share
Net
€000 €000 €000 €000 €000 €000
1 January 608,591 (29,775) 578,816 579,128 (28,625) 550,503
New business 28,449 (4,297) 24,152 13,811 (3,367) 10,444
Change in existing
business
35,933 1,358 37,291 15,652 2,217 17,869
31 December
672,973 (32,714) 640,259 608,591 (29,775) 578,816
Non-life insurance contract liabilities
The movement of non-life insurance contract liabilities and reinsurance assets during the year is analysed as
follows:
2021 2020
Gross
Reinsurers'
share
Net Gross
Reinsurers'
share
Net
Provisions for unearned
premiums
€000 €000 €000 €000 €000 €000
1 January 26,178 (9,250) 16,928 26,656 (9,728) 16,928
Premium income 77,261 (35,311) 41,950 74,966 (33,749) 41,217
Earned premiums
(75,874) 34,573 (41,301) (75,444) 34,227 (41,217)
31 December
27,565 (9,988) 17,577 26,178 (9,250) 16,928
The provision for unearned insurance and reinsurance premiums represents the portion of premiums that
relate to risks that have not yet expired at the reporting date.
159
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
32. Insurance liabilities (continued)
2021 2020
Gross
Reinsurers'
share
Net Gross
Reinsurers'
share
Net
Claims outstanding
€000 €000 €000 €000 €000 €000
1 January
36,756 (14,454) 22,302 34,155 (12,256) 21,899
Amount paid for claims
settled in the year
(22,766) 8,858 (13,908) (26,277) 10,857 (15,420)
Increase in liabilities
arising from claims
21,639 (7,025) 14,614 28,878 (13,055) 15,823
31 December
35,629 (12,621) 23,008 36,756 (14,454) 22,302
Reported claims 33,809 (11,815) 21,994 34,683 (13,510) 21,173
Incurred but not reported
1,820 (806) 1,014 2,073 (944) 1,129
31 December
35,629 (12,621) 23,008 36,756 (14,454) 22,302
33. Loan stock
2021 2020
€000 €000 €000 €000
Contractual interest
rate
Issuer
Nominal
value
Carrying
value
Nominal
value
Carrying
value
Subordinated Tier 2
Capital Note - January
2017
9.25% up to 19 January
2022
BOC PCL
35,605 38,561 250,000 272,152
Subordinated Tier 2
Capital Note - April 2021
6.625% up to 23 October
2026
BOCH
300,000 301,659 - -
Senior Preferred Notes -
June 2021
2.50% up to 24 June
2026
BOC PCL
300,000 302,555 - -
635,605 642,775 250,000 272,152
BOCH and BOC PCL maintain a Euro Medium Term Note (ΕΜΤΝ) Programme with an aggregate nominal
amount up to €4,000 million.
Subordinated Tier 2 Capital Note - January 2017
In January 2017, BOC PCL issued a €250 million unsecured and subordinated Tier 2 Capital Note under the
EMTN Programme. The note was priced at par with a coupon of 9.25% per annum payable annually up to 19
January 2022 and then a rate at the then prevailing 5 year swap rate plus a margin of 9.176% per annum
up to 19 January 2027, payable annually. The note had a maturity date on 19 January 2027. BOC PCL had
the option to redeem the note early on 19 January 2022, subject to applicable regulatory consents. The
note was listed on the Luxembourg Stock Exchange’s Euro Multilateral Trading Facility (MTF) market. In
April 2021, BOC PCL invited the holders of this note to tender it for purchase by BOC PCL at a price of
105.5% plus accrued interest. BOC PCL received valid tenders of €207 million nominal amount, all of which
were accepted. By 31 December 2021, the Group purchased from the open market a further €7 million
nominal amount of the notes, which were held by BOC PCL. BOC PCL incurred a cost of €12,558 thousand
(Note 11). In December 2021, BOC PCL decided to exercise its option to redeem the remaining €43 million
nominal amount outstanding (of which €7 million are held by BOC PCL) of the notes on 19 January 2022
and notified the noteholders accordingly. The full amount was redeemed at par on 19 January 2022.
Subordinated Tier 2 Capital Note - April 2021
In April 2021, BOCH issued a €300 million unsecured and subordinated Tier 2 Capital Note under the EMTN
Programme. The note was priced at par with a coupon of 6.625% per annum payable annually in arrears
and resettable on 23 October 2026 at the then prevailing 5-year swap rate plus a margin of 6.902% per
annum up to 23 October 2031, payable annually. The note matures on 23 October 2031. BOCH has the
option to redeem the note early on any day during the six-month period from 23 April 2026 to 23 October
2026, subject to applicable regulatory consents. The note is listed on the Luxembourg Stock Exchange’s
Euro MTF market.
160
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
33. Loan stock (continued)
Senior Preferred Notes - June 2021
In June 2021, BOC PCL issued a €300 million senior preferred note under the EMTN Programme. The note
was priced at par with a fixed coupon of 2.50% per annum, payable annually in arrears and resettable on
24 June 2026. The note matures on 24 June 2027. BOC PCL has the option to redeem the note early on 24
June 2026, subject to applicable regulatory consents. The note is listed on the Luxembourg Stock
Exchange’s Euro MTF market. The note complies with the criteria for the minimum requirement for own
funds and eligible liabilities (MREL) and contributes towards BOC PCL’s MREL requirements.
The fair value of the loan stock as at 31 December 2021 is disclosed in Note 22.
34. Accruals, deferred income, other liabilities and other provisions
2021 2020
€000 €000
Income tax payable and related provisions 11,168 8,982
Special defence contribution payable 462 971
Retirement benefit plans liabilities (Note 14) 1,673 9,568
Provisions for financial guarantees and commitments (Notes 45.6.1 and
45.6.2)
21,945 19,658
Liabilities for investment-linked contracts under administration 33,809 18,747
Accrued expenses and other provisions 79,482 63,942
Deferred income 16,441 13,411
Items in the course of settlement 64,024 66,217
Lease liabilities (Note 43) 33,981 45,955
Advances received for disposal group held for sale (Note 29) 19,225 21,100
Other liabilities
79,767 91,341
361,977 359,892
Other liabilities include an amount of €26,476 thousand (2020: €21,176 thousand) relating to the annual
guarantee fee for the conversion of DTA into tax credits (Note 17).
The ECL allowance for financial guarantees and commitments is analysed by stage in the table below:
2021 2020
€000 €000
Stage 1 39 168
Stage 2 293 1,120
Stage 3
21,613 18,370
21,945 19,658
35. Share capital
2021 2020
Number of
shares
(thousand)
€000
Number of
shares
(thousand)
€000
Authorised
Ordinary shares of €0.10 each
10,000,000 1,000,000 10,000,000 1,000,000
Issued
1 January and 31 December
446,200 44,620 446,200 44,620
Authorised and issued share capital
All issued ordinary shares carry the same rights.
There were no changes to the authorised or issued share capital during the year ended 31 December 2021
and 2020.
161
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
35. Share capital (continued)
Share premium reserve
2021
There were no changes to the share premium reserve during the year ended 31 December 2021.
2020
The Company, following relevant resolution of its shareholders at the May 2020 Annual General Meeting and
subsequent approval by the ECB in September 2020 and by the Irish High Court (pursuant to section 85(1)
of the Companies Act of 2014 of Ireland), implemented a capital reduction process in November 2020,
which resulted in the reclassification of €700 million of the Company's share premium balance as
distributable reserves (retained earnings).
Treasury shares of the Company
The consideration paid, including any directly attributable incremental costs (net of income taxes), for
shares of the Company held by entities controlled by the Group is deducted from equity attributable to the
owners of the Company as treasury shares, until these shares are cancelled or reissued. No gain or loss is
recognised in the consolidated income statement on the purchase, sale, issue or cancellation of such shares.
The life insurance subsidiary of the Group, as at 31 December 2021, held a total of 142 thousand ordinary
shares of the Company of a nominal value of €0.10 each (2020: 142 thousand ordinary shares of a nominal
value of €0.10 each), as part of its financial assets which are invested for the benefit of insurance
policyholders. The cost of acquisition of these shares was €21,463 thousand (2020: €21,463 thousand).
The treasury shares represent 0.03% of the total issued share capital of the Company (2020: 0.03%).
The Company did not provide financial assistance permitted by Section 82 of the Companies Act 2014 for
the purchase of its shares.
Share-based payments - share options
Following the incorporation of the Company and its introduction as the new holding company of the Group in
January 2017, the Long-Term Incentive Plan was replaced by the Share Option Plan which operates at the
level of the Company. The Share Option Plan is identical to the Long-Term Incentive Plan except that the
number of shares in the Company to be issued pursuant to an exercise of options under the Share Option
Plan should not exceed 8,922,945 ordinary shares of a nominal value of €0.10 each and the exercise price
was set at €5.00 per share. The term of the options was also extended to between 4-10 years after the
grant date.
No share options were granted since the date of replacement of the Long-Term Incentive Plan by the Share
Option Plan at the level of the Company and the Share Option Plan remains frozen. Any shares related to
the Share Option Plan carry rights with regards to control of the Company that are only exercisable directly
by the employee.
Other equity instruments
2021 2020
€000 €000
Reset Perpetual Additional Tier 1 Capital Securities
220,000 220,000
In December 2018 the Company issued €220 million Subordinated Fixed Rate Reset Perpetual Additional
Tier 1 Capital Securities (AT1). AT1 constitutes an unsecured and subordinated obligation of the Company.
The coupon is at 12.50% and is payable semi-annually. During the year ended 31 December 2021, two
coupon payments to AT1 holders were made of a total amount of €27,500 thousand and have been
recognised in retained earnings (2020: €27,500 thousand). The Company may elect to cancel any interest
payment for an unlimited period, on a non-cumulative basis, whereas it mandatorily cancels interest
payment under certain conditions. AT1 is perpetual and has no fixed date for redemption but can be
redeemed (in whole but not in part) at the Company's option on the fifth anniversary of the issue date and
each subsequent fifth anniversary subject to the prior approval of the regulator. The AT1 notes are listed on
the Luxembourg Stock Exchange's Euro Multilateral Trading Facility (MTF) market.
162
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
36. Dividends
Based on the 2019 SREP decision which remained in effect during 2021 following relevant communication
by the ECB, the Company and BOC PCL are under a regulatory prohibition for equity dividend distribution,
similar to prior years. Following the 2021 SREP decision, the Company and BOC PCL remain under equity
dividend distribution prohibition. This prohibition does not apply if the distributions are made via the
issuance of new ordinary shares to the shareholders which are eligible as Common Equity Tier 1 capital. No
dividends were declared or paid during the years 2021 and 2020.
No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company
and BOC PCL.
37. Retained earnings
For the purpose of dividend distribution, retained earnings determined at the Company level, are the only
distributable reserve.
Companies, tax resident in Cyprus, which do not distribute at least 70% of their profits after tax as defined
by the Special Defence Contribution Law during the two years after the end of the year of assessment to
which the profits refer, will be deemed to have distributed this amount as dividend. Special defence
contribution (SDC) at 17% is payable on such deemed dividend distribution to the extent that the
shareholders of the Company at the end of the period of two years from the end of the year of assessment
to which the profits refer, are directly or indirectly Cyprus tax residents or individuals who are domiciled in
Cyprus. Deemed distribution does not apply in respect of profits that are directly or indirectly attributable to
shareholders that are non-Cyprus tax residents and individual shareholders who are not domiciled in
Cyprus. From 1 March 2019, the deemed dividend distribution is subject to 1.70% contribution to the
General Health System (GHS), increased to 2.65% from 1 March 2020, with the exemption of April 2020
until June 2020 when the 1.70% rate was applicable.
The amount of this deemed dividend distribution is reduced by any actual dividend paid out of the profits of
the relevant year.
This SDC and GHS are paid by the Company on account of the shareholders. During 2021, SDC and GHS on
deemed dividend distribution of €82 thousand (2020: €1 thousand) was paid by the Company. BOC PCL had
no profits after tax for the relevant year as defined by the Special Defence Contribution Law and as such no
payment was made during 2021 and 2020.
38. Fiduciary transactions
The Group offers fund management and custody services that result in holding or investing financial assets
on behalf of its customers. The Group is not liable to its customers for any default by other banks or
organisations. The assets under management and custody are not included in the consolidated balance
sheet of the Group unless they are placed with the Group. Total assets under management and custody at
31 December 2021 amounted to €1,577,173 thousand (2020: €1,266,399 thousand).
39. Pending litigation, claims, regulatory and other matters
The Group, in the ordinary course of business, is involved in various disputes and legal proceedings and is
subject to enquiries and examinations, requests for information, audits, investigations, legal and other
proceedings by regulators, governmental and other public bodies, actual and threatened, relating to the
suitability and adequacy of advice given to clients or the absence of advice, lending and pricing practices,
selling and disclosure requirements, record keeping, filings and a variety of other matters. In addition, as a
result of the deterioration of the Cypriot economy and banking sector in 2012 and the subsequent
restructuring of BOC PCL in 2013 as a result of the bail in Decrees, BOC PCL is subject to a large number of
proceedings and investigations that either precede, or result from the events that occurred during the
period of the bail-in Decrees. There are also situations where the Group may enter into a settlement
agreement. This may occur only if such settlement is in BOC PCL's interest (such settlement does not
constitute an admission of wrongdoing) and only takes place after obtaining legal advice and all approvals
by the appropriate bodies of management.
163
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
39. Pending litigation, claims, regulatory and other matters (continued)
Apart from what is described below, the Group considers that none of these matters are material, either
individually or in aggregate. The Group has not disclosed an estimate of the potential financial effect on its
contingent liabilities arising from these matters where it is not practicable to do so, because it is too early
or the outcome is too uncertain or, in cases where it is practicable, where disclosure could prejudice conduct
of the matters. Provisions have been recognised for those cases where the Group is able to estimate
probable losses (Note 5.4). Where an individual provision is material, the fact that a provision has been
made is stated. Any provision recognised does not constitute an admission of wrongdoing or legal liability.
While the outcome of these matters is inherently uncertain, management believes that, based on the
information available to it, appropriate provisions have been made in respect of legal proceedings and
regulatory and other matters as at 31 December 2021 and hence it is not believed that such matters, when
concluded, will have a material impact upon the financial position of the Group.
39.1 Pending litigation and claims
Investigations and litigation relating to securities issued by BOC PCL
A number of institutional and retail customers have filed various separate actions against BOC PCL alleging
that BOC PCL is guilty of misselling in relation to securities issued by BOC PCL between 2007 and 2011.
Remedies sought include the return of the money investors paid for these securities. Claims are currently
pending before the courts in Cyprus and in Greece, as well as the decisions and fines imposed upon BOC
PCL in related matters by Cyprus Securities and Exchange Commission (CySEC) and/or Hellenic Capital
Market Commission (HCMC).
The bonds and capital securities in respect of which claims have been brought are the following: 2007
Capital Securities, 2008 Convertible Bonds, 2009 Convertible Capital Securities (CCS) and 2011 Convertible
Enhanced Capital Securities (CECS).
BOC PCL is defending these claims, particularly with respect to institutional investors and retail purchasers
who received investment advice from independent investment advisors. In the case of retail investors, if it
can be documented that the relevant BOC PCL's officers 'persuaded' them to proceed with the purchase
and/or purported to offer 'investment advice', BOC PCL may face significant difficulties. To date, a number
of cases have been tried in Greece. BOC PCL has appealed against any such cases which were not ruled in
its favour. The resolution of the claims brought in the courts of Greece is expected to take a number of
years.
So far three capital securities cases have been adjudicated in favour of BOC PCL and two cases have been
adjudicated against BOC PCL at Areios Pagos (Supreme Court of Greece). Those cases which were decided
in favour of BOC PCL ruled in effect that BOC PCL can rely on the defence of frustration (i.e. intervening
event out of the control of BOC PCL, in this case BOC PCL’s resolution and recapitalisation through the bail-
in of deposits) to show that the risks associated with the sale of the capital securities because of the
consequences of the bail-in were unforeseeable. The cases that BOC PCL has won will be retried by the
Court of Appeal as per the direction of the Supreme Court. One of the said cases has been concluded at all
levels in favour of BOC PCL. The two cases that BOC PCL has lost will not be retried and are therefore
deemed as concluded.
In Cyprus nine judgments have been issued so far with regards to BOC PCL capital securities. Seven of the
said judgments have been issued in favour of BOC PCL (dismissing the plaintiffs’ claims) and two of them
against BOC PCL. BOC PCL has filed an appeal with regards to one of the cases where the judgment was
issued against it. In four of the seven cases that BOC PCL won, the plaintiffs have filed an appeal. It is to be
noted that the statutory limitation period for filing claims with respect to this and other matters for which
the cause of action arose prior and up to 31 December 2015, has now expired on 31 December 2021.
Provision has been made based on management's best estimate of probable outflows for capital securities
related litigation.
Bail-in related litigation
Depositors
A number of BOC PCL's depositors, who allege that they were adversely affected by the bail-in, filed claims
against BOC PCL and other parties (such as the CBC and the Ministry of Finance of Cyprus) including against
BOC PCL as the alleged successor of Laiki Bank on the grounds that, inter alia, the ‘Resolution Law of 2013’
and the Bail-in Decrees were in conflict with the Constitution of the Republic of Cyprus and the European
Convention on Human Rights. They are seeking damages for their alleged losses resulting from the bail-in of
their deposits. BOC PCL is defending these actions.
164
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
39. Pending litigation, claims, regulatory and other matters (continued)
39.1 Pending litigation and claims (continued)
BOC PCL has won a case with regards to bail-in related litigation in June 2020. The specifics of the case
concerned alleged failure to follow instructions prior to the bail-in. The plaintiffs have filed an appeal with
respect to this judgment.
BOC PCL won the first bail-in decree case in January 2022. The court essentially ruled that the measures
that the government implemented were necessary to prevent the collapse of the financial sector, which
would have detrimental consequences for the country’s economy. Under the aforementioned circumstances
the government could rely on the doctrine of necessity when it imposed the bail-in.
Shareholders
Numerous claims were filed by shareholders in 2013 against the Government and the CBC before the
Supreme Court in relation to the dilution of their shareholding as a result of the recapitalisation pursuant to
the Resolution Law and the Bail-in Decrees issued thereunder. These proceedings sought the cancellation
and setting aside of the Bail-in Decrees as unconstitutional and/or unlawful and/or irregular. BOC PCL
appeared in these proceedings as an interested party to support the position that the cases should be
adjudicated upon in the context of private law. The Supreme Court ruled in these cases in October 2014
that the proceedings fall within private and public law and thus fall within the jurisdiction of the District
Courts.
As at the present date, both the Resolution Law and the Bail-in Decrees have not been annulled by a court
of law and thus remain legally valid and in effect. A number of actions for damages have been filed and are
still being filed with the District Courts of Cyprus alleging either the unconstitutionality of the Resolution
Law and the Bail-in Decrees, or a misapplication of same by BOC PCL (as regards the way and methodology
whereby such Decrees have been implemented), or that BOC PCL failed to follow instructions promptly prior
to the bail-in coming into force. BOC PCL intends to contest all of these claims.
Legal position of the Group
All of the above claims are being vigorously disputed by the Group, in close consultation with the
appropriate state and governmental authorities. The position of the Group is that the Resolution Law and
the Decrees take precedence over all other laws. As matters now stand, both the Resolution Law and the
Decrees issued thereunder are constitutional and lawful, in that they were properly enacted and have not so
far been annulled by any court.
Provident fund case
In December 2015, the Bank of Cyprus Employees Provident Fund (the Provident Fund) filed an action
against BOC PCL claiming €70 million allegedly owed as part of BOC PCL's contribution by virtue of an
agreement with the Union dated 31 December 2011. Based on facts currently known, it is not practicable at
this time for BOC PCL to predict the resolution of this matter, including the timing or any possible impact on
BOC PCL.
Employment litigation
Former senior officers of BOC PCL have instituted one claim for unfair dismissal and one claim for Provident
Fund entitlements against BOC PCL and the Trustees of the Provident Fund. In July 2021 the claim for
Provident Fund entitlements was settled. The Group does not consider that the pending case in relation to
unfair dismissal will have a material impact on its financial position.
Additionally, a number of former employees have filed claims against BOC PCL contesting entitlements
received relating to the various voluntary exit plans. As at the reporting date, the Group does not expect
that these actions will have a material impact on its financial position.
Swiss Francs loans litigation in Cyprus and the UK
Α number of actions have been instituted against BOC PCL by borrowers who obtained loans in foreign
currencies (mainly Swiss Francs). The central allegation in these cases is that BOC PCL misled these
borrowers and/or misrepresented matters, in violation of applicable law. BOC PCL is contesting the said
proceedings. The Group does not expect that these actions will have a material impact on its financial
position.
165
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
39. Pending litigation, claims, regulatory and other matters (continued)
39.1 Pending litigation and claims (continued)
UK property lending claims
BOC PCL is the defendant in certain proceedings alleging that BOC PCL is legally responsible for allegedly,
inter alia, advancing and misselling loans for the purchase by UK nationals of property in Cyprus. The
proceedings in the UK are currently stayed in order for the parties to have time to negotiate possible
settlements. The Group does not expect that these negotiations will lead to outflows for the Group.
Banking business cases
There is a number of banking business cases where the amounts claimed are significant. These cases
primarily concern allegations as to BOC PCL's standard policies and procedures allegedly resulting to
damages and other losses for the claimants. Further, several other banking claims, where the amounts
involved are not as significant, have been assessed by management and appropriate provisions have been
taken. Management has assessed either the probability of loss as remote and/or does not expect any future
outflows with respect to these cases to have a material impact on the financial position of the Group. Such
matters arise as a result of the Group’s activities and management appropriately assesses the facts and the
risks of each case accordingly.
General criminal investigations and proceedings
The Attorney General and the Cypriot Police (the Police) are conducting various investigations and inquiries
following and relating to the financial crisis which culminated in March 2013. BOC PCL is cooperating fully
with the Attorney General and the Police and is providing all information requested of it. Based on the
currently available information, the Group is of the view that any further investigations or claims resulting
from these investigations will not have a material impact on its financial position.
Others
An investigation is in process related to potentially overstated and/or fictitious claims paid by the non-life
insurance subsidiary of the Group. The information usually required by IAS 37 'Provisions, Contingent
Liabilities and Contingent Assets' is not disclosed on the grounds that it is expected to seriously prejudice
the outcome of the investigation and/or the possible taking of legal action. Based on the information
available at present, management considers that it is unlikely for this matter to have a material adverse
impact on the financial position and capital adequacy of the non-life insurance subsidiary and thereby the
Group, also taking into account that it is virtually certain that compensations will be received from a
relevant insurance coverage, upon the settlement of any obligation that may arise.
39.2 Regulatory matters
The Hellenic Capital Market Commission (HCMC) Investigation
The HCMC is currently in the process of investigating matters concerning the Group's investment in Greek
Government Bonds from 2009 to 2011, including, inter alia, related non-disclosure of material information
in BOC PCL's CCS and CECS and rights issue prospectus (tracking the investigation carried out by CySEC in
2013), Greek government bonds' reclassification, ELA disclosures and allegations by some investors
regarding BOC PCL's non-compliance with Markets in Financial Instruments Directive (MiFID) in respect of
investors' direct investments in Greek Government Bonds.
A specific estimate of the outcome of the investigations or of the amount of possible fines cannot be given
at this stage, though it is not expected that any resulting liability or damages will have a material impact on
the financial position of the Group.
Labour Inspection Body of Greece
As for other potential matters involving the exposure of BOC PCL to losses, twelve fines have been imposed
by the Labour Inspection Body of Greece in prior years relating to the years prior to 2013, which amount in
total to €84 thousand.
The Cyprus Securities and Exchange Commission (CySEC) Investigations
As at 31 December 2021 and 31 December 2020 there were no pending CySEC investigations against BOC
PCL.
Central Bank of Cyprus (CBC)
The CBC has carried out certain investigations to assess compliance of BOC PCL under the anti-money
laundering (AML) legislation which was in place during years 2008-2015 and 2015-2018.
166
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
39. Pending litigation, claims, regulatory and other matters (continued)
39.2 Regulatory matters (continued)
Following the investigations and the on-site audit findings, the CBC concluded on 27 January 2021 that in
the case of AML legislation 2008-2015 BOC PCL was in breach of certain articles of the said legislation and
prima facie, failed to act in accordance with certain provisions of the AML/counter terrorism financing (CTF)
Law and the CBC AML/CTF Directive. In October 2021 a fine of €277 thousand was imposed upon BOC PCL.
BOC PCL paid for a discounted fine and has filed a recourse against this decision and fine.
Following the investigation and the on-site examination, the CBC concluded with regards to the files and
transactions related to years 2015-2018, that BOC PCL was in breach of certain articles of the legislation. In
December 2021, a fine of €790 thousand was imposed upon BOC PCL. BOC PCL paid for a discounted fine
and has filed a recourse against the decision and the fine.
The CBC had conducted an investigation in the past into BOC PCL's issuance of capital securities and
concluded that BOC PCL breached certain regulatory requirements concerning the issuance of Convertible
Capital Securities (Perpetual) in 2009, but not in relation to the CECS in 2011. The CBC had, in 2013,
imposed a fine of €4 thousand upon BOC PCL, who filed a recourse. The Administrative Court cancelled both
the CBC’s decision and the fine that was imposed upon BOC PCL in a respective judgment dated in 2020.
CBC decided to re-examine this matter and to re-open the investigation.
The CBC has decided that between the reporting date of 31 December 2014 and until the reporting date of
31 December 2017 BOC PCL was in breach of the requirements of the Directive on the Computation of
Prudential Liability in Euro, of the Directive on the Prudential Liability in foreign currencies and of the CBC
Directive on Governance and Management Arrangements in Credit Institutions. BOC PCL was given the
opportunity to express its views with regards to the identified failures and the possible imposition of
sanctions. BOC PCL has submitted its views and representations and CBC will decide on the matter.
European Central Bank (ECB) Investigation
In July 2021, BOC PCL was notified in writing by the ECB that, based on an investigation carried out by
ECB’s investigating unit, BOC PCL is allegedly in breach of an ECB decision of September 2016. The alleged
breach relates to the requirement imposed on BOC PCL to seek the prior approval of the ECB for any
transfer of capital or liquidity to any subsidiary company. BOC PCL made written submissions about the
factual results from the findings and objections raised against it. The submissions and supporting evidence
of BOC PCL were taken into consideration by the ECB’s investigating unit prior to the submission of its final
proposal to the Supervisory Board of the ECB with respect to whether the alleged breach has been
committed and as to the level of the penalty, if any. The ECB decided that BOC PCL was in breach of the
ECB decision of September 2016 and the breach substantiated the imposition of a penalty. The Governing
Council of the ECB informed BOC PCL in February 2022 of its decision to impose an administrative penalty
of €575 thousand.
Commission for the Protection of Competition Investigation (CPC)
In April 2014, following an investigation which began in 2010, CPC issued a statement of objections,
alleging violations of Cypriot and EU competition law relating to the activities and/or omissions in respect of
card payment transactions by, among others, BOC PCL and JCC Payment Systems Ltd (JCC), a card
processing business currently 75% owned by BOC PCL. BOC PCL is expecting the final conclusion of this
matter and has provided for it accordingly.
There was also an allegation concerning BOC PCL's arrangements with American Express, namely that such
exclusive arrangements violated Cypriot and EU competition law. On both matters, the CPC has concluded
that BOC PCL (in common with other banks and JCC) has breached the relevant provisions of the applicable
law for the protection of competition. In May 2017, the CPC imposed a fine of €18 million upon BOC PCL
and BOC PCL filed a recourse against the decision and the fine. The payment of the fine had been stayed
pending the final outcome of the recourse. In June 2018, the Administrative Court accepted BOC PCL’s
position and cancelled the decision as well as the fine imposed upon BOC PCL. During 2018, the Attorney
General has filed an appeal before the Supreme court with respect to such decision. Until a judgment is
issued by the Supreme Court, the decision of the CPC remains annulled and there is no subsisting fine upon
BOC PCL. The said appeal is still pending as at the year end.
In 2019 the CPC initiated an ex officio investigation with respect to unfair contract terms and into the
contractual arrangements/facilities offered by BOC PCL for the period from 2012 to 2016. To date no
charges have been put forward nor have any formal proceedings been instituted against BOC PCL in this
case. This investigation is currently at a very early stage to predict its outcome and no formal process has
been initiated.
167
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
39. Pending litigation, claims, regulatory and other matters (continued)
39.2 Regulatory matters (continued)
Consumer Protection Service (CPS)
In July 2017, CPS imposed a fine of €170 thousand upon BOC PCL after concluding an ex officio
investigation regarding some terms in both BOC PCL's and Marfin Popular Bank's loan documentation, that
were found to constitute unfair commercial practices. Decisions of the CPS (according to rulings of the
Administrative Court) are not binding but merely an expression of opinion. Against this decision, BOC PCL
has filed a recourse before the Administrative Court which has not yet issued its judgement. The recourse is
still pending as at the reporting year end.
In March 2020, BOC PCL has been served with an application by the director of CPS through the Attorney
General seeking for an order of the court, with immediate effect, the result of which will be for BOC PCL to
cease the use of a number of terms in the contracts of BOC PCL which will be deemed to be unfair under the
said order. The said terms relate to contracts that had been signed during 2006-2007. Furthermore, the
said application seeks for an order ordering BOC PCL to undertake measures to remedy the situation. BOC
PCL will take all necessary steps for the protection of its interests. This matter is still pending before the
court as at the reporting year end.
In April 2021, the Director of the Consumer Protection Service filed an application for the issuance of a
court order against BOC PCL, prohibiting the use of a number of contractual terms included in BOC PCL’s
consumer contracts and the amendment of any such contracts (present and future) so as to remove such
unfair terms. This matter is still pending before the court as at the year end.
BOC PCL received a letter in July 2021 from CPS, initiating an ex officio investigation under the Distance
Marketing of Financial Services to Consumers Law, with respect to the services and products of BOC PCL for
which the contract between BOC PCL and the consumer is entered into online via BOC PCL’s website.
BOC PCL received another letter in July 2021 from CPS, initiating an investigation with respect to an alleged
commercial practice of BOC PCL of promoting a product.
The investigations are currently at a very early stage to predict their outcome.
Cyprus Consumers’ Association (CCA)
In March 2021, BOC PCL was served with an application filed by the CCA for the issuance of a court order
prohibiting the use of a number of contractual terms included in BOC PCL’s consumer contracts and the
amendment of any such contracts (present and future) so as to remove such terms deemed as unfair. The
said contractual terms were determined as unfair pursuant to the decisions issued by the Consumer
Protection Service of the Ministry of Energy, Commerce, Industry and Tourism against BOC PCL in 2016 and
2017. BOC PCL will take all necessary steps for the protection of its interests. This matter is still pending
before the court as at the reporting year end.
The new Law on Consumer Protection brings under one umbrella the existing legislation on unfair contract
terms and practices with some enhanced powers vested in the Consumer Protection Service i.e. power to
impose increased fines which are immediately payable. The new Law on Consumer Protection has a
retrospective effect in that it also applies to all contracts/practices entered into and/or terminated prior to
this law coming into effect as opposed to contracts/practices which are only entered into/adopted as from
the date of publication of the new Law on Consumer Protection.
There are many factors that may affect the range of outcomes, and the resulting financial impact, of these
matters, is unknown.
UK regulatory matters
As part of the agreement for the sale of Bank of Cyprus UK Ltd, a liability with regards to UK regulatory
matters remains an obligation for settlement by the Group. The level of the provision represents the best
estimate of all probable outflows arising from customer redress based on information available to
management.
39.3 Οther matters
Other matters include among others, provisions for various other open examination requests by
governmental and other public bodies, legal matters and provisions for warranties and indemnities related
to the disposal process of certain operations of the Group.
168
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
39. Pending litigation, claims, regulatory and other matters (continued)
39.3 Οther matters (continued)
The provisions for pending litigation, claims, regulatory and other matters do not include insurance claims
arising in the ordinary course of business of the Group’s insurance subsidiaries as these are included in
‘Insurance liabilities’.
39.4 Provisions for pending litigation, claims, regulatory and other matters
Pending
litigation and
claims
(Note 39.1)
Regulatory
matters
(Note 39.2)
Other matters
(Note 39.3)
Total
2021 €000 €000 €000 €000
1 January
67,439 12,305 43,871 123,615
Net increase in provisions including
unwinding of discount (Note 15)
2,295 4,964 29,273 36,532
Utilisation of provisions (6,768) (907) (39,368) (47,043)
Release of provisions (Note 15) (5,122) - (3,927) (9,049)
Foreign exchange adjustments
- 53 - 53
31 December
57,844 16,415 29,849 104,108
Provisions expected to be settled within 12
months post reporting date
15,782 1,845 2,662 20,289
2020
1 January 70,075 13,691 24,328 108,094
Net increase in provisions including
unwinding of discount (Note 15)
24,908 271 21,417 46,596
Utilisation of provisions (12,706) (1,555) (1,013) (15,274)
Release of provisions (Note 15) (14,838) - (861) (15,699)
Foreign exchange adjustments
- (102) - (102)
31 December
67,439 12,305 43,871 123,615
Provisions expected to be settled within 12
months post reporting date
15,795 548 - 16,343
Provisions for pending litigation, claims, regulatory and other matters recorded in the annual consolidated
income statement (Note 15) during the year ended 31 December 2021 amounting to credit of €523
thousand (2020: charge of €30,897 thousand), also include an amount of €841 thousand representing an
amount recovered from plaintiffs directly recognised in the consolidated income statement (2020: €nil).
Some information required by the IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' is not
disclosed on the grounds that it can be expected to prejudice seriously the outcome of the litigation or the
outcome of the negotiation in relation to provisions for warranties and indemnities related to the disposal
process of certain operations of the Group.
The net decrease of provisions for pending litigation and claims for the year ended 31 December 2021 was
primarily driven by the utilisation of provisions as a result of the progressed status of the pending
investigations and litigations relating to securities issued by BOC PCL in Greece and updated estimates for
provisions required as at 31 December 2021. With regards to other matters, provisions for matters in
relation to the disposal process of certain of the Group's operations have been updated on the basis of the
Group's assessment and as elements of those processes have progressed.
An increase by 5% in the probability of loss rate for pending litigation and claims (2020: 5%) with all other
variables held constant, would lead to an increase in the actual provision by €7,097 thousand at 31
December 2021 (2020: increase by €6,956 thousand).
169
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
40. Contingent liabilities and commitments
As part of the services provided to its customers, the Group enters into various irrevocable commitments
and contingent liabilities. These consist of financial guarantees, letters of credit and other undrawn
commitments to lend.
Even though these obligations may not be recognised on the consolidated balance sheet, they do contain
credit risk and are therefore part of the overall credit risk exposure of the Group (Note 45.6).
40.1 Capital commitments
Capital commitments for the acquisition of property, equipment and intangible assets as at 31 December
2021 amount to €18,678 thousand (2020: €19,420 thousand).
40.2. Contingent liabilities
The Group, as part of its disposal process of certain of its operations, has provided various representations,
warranties and indemnities to the buyers. These relate to, among other things, the ownership of the loans,
the validity of the liens, tax exposures and other matters agreed with the buyers. As a result, the Group
may be obliged to compensate the buyers in the event of a valid claim by the buyers with respect to the
above representations, warranties and indemnities.
A provision has been recognised, based on management’s best estimate of probable outflows, where it was
assessed that such an outflow is probable (Note 39.3).
170
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
41. Net cash flow from operating activities
2021
2020
€000 €000
Profit/(loss) before tax
36,120 (166,863)
Adjustments for:
Credit losses to cover credit risk on loans and advances to customers and net gains on
derecognition of financial assets measured at amortised cost
36,482 272,131
Depreciation of property and equipment 16,313 19,224
Amortisation of intangible assets 18,615 18,263
Impairment/(reversal of impairment) of other non-financial assets 2,681 (7)
Credit losses of other financial instruments 5,803 4,585
Amortisation of discounts/premiums and interest on debt securities (20,102) (27,029)
(Profit)/loss on sale and write-offs of property and equipment and intangible assets (7) 90
Net gains on disposal of investment properties (955) (556)
Net losses from revaluation of investment properties 2,783 2,055
Dividend income (1,774) (294)
Net losses on financial liabilities at FVPL - 34
Net gains on disposal of investments in debt securities - (2,865)
Share of profit from associates (137) (69)
Loss/(profit) from revaluation of debt securities designated as fair value hedges 16,779 (5,239)
Loss on disposal/dissolution of subsidiaries and associates 724 2,219
Net gains on disposal of stock of property (13,296) (8,189)
Impairment of stock of property 46,775 37,593
Negative interest on loans and advances to banks and central banks 31,919 18,782
Negative interest on funding from central banks (25,094) (5,306)
Interest on loan stock 27,687 23,329
Change in value of in-force life insurance business (3,714) (9,543)
Interest expense on lease liabilities 121 489
Loss from buyback of subordinated loan stock
12,558 -
190,281 172,834
Change in:
Loans and advances to banks (23,955) 13,648
Deposits by banks 65,090 (141,455)
Obligatory balances with central banks (8,956) 2,017
Customer deposits 997,671 (158,319)
Life insurance assets and liabilities (13,012) 16,255
Loans and advances to customers measured at amortised cost (246,151) (118,500)
Loans and advances to customers measured at FVPL 7,993 79,432
Other assets 90,014 (23,571)
Accrued income and prepaid expenses (247) 747
Other liabilities and pending litigation, claims, regulatory and other matters (43,888) 34,777
Accrued expenses and deferred income 18,570 (25,878)
Derivative financial instruments 4,448 (6,182)
Investments measured at FVPL (2,103) (31,837)
Repurchase agreements - (168,129)
Stock of property
136,816 81,917
1,172,571 (272,244)
Tax paid
(2,066) (1,259)
Net cash flow from/(used in) operating activities
1,170,505 (273,503)
171
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
41. Net cash flow from operating activities (continued)
Non-cash transactions
2021
Repossession of collaterals
During 2021, the Group acquired properties by taking possession of collaterals held as security for loans
and advances to customers of €37,121 thousand (2020: €123,817 thousand) (Note 45.8).
Recognition of RoU asset and lease liabilities
During 2021 the Group recognised RoU assets and corresponding lease liabilities of €1,148 thousand (2020:
€24,388 thousand).
Disposal of Project Helix 2
Upon the disposal of Project Helix 2, deferred consideration of €381,567 thousand was recognised (Note
28).
Net cash flow from operating activities - interest and dividends
2021 2020
€000 €000
Interest paid (119,480) (119,321)
Interest received 437,837 443,589
Dividends received
1,774 294
320,131 324,562
Changes in liabilities arising from financing activities
Funding from
central banks
(Note 30)
Loan stock
(Note 33)
Total
2021 €000 €000 €000
1 January 994,694 272,152 1,266,846
Cash flows 1,968,081 330,890 2,298,971
Other non-cash movements
6,825 39,733 46,558
31 December
2,969,600 642,775 3,612,375
2020
1 January - 272,170 272,170
Cash flows 981,218 (23,329) 957,889
Other non-cash movements
13,476 23,311 36,787
31 December
994,694 272,152 1,266,846
Further information relating to the change in lease liabilities is disclosed in Note 43.
42. Cash and cash equivalents
Cash and cash equivalents comprise:
2021 2020
€000 €000
Cash and non-obligatory balances with central banks 9,063,896 5,495,284
Cash and non-obligatory balances with central banks classified as held for
sale (Note 29)
- 68,425
Loans and advances to banks with original maturity less than three months
191,314 326,426
9,255,210 5,890,135
172
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
42. Cash and cash equivalents (continued)
Analysis of cash and balances with central banks and loans and advances to banks
2021 2020
€000 €000
Cash and non-obligatory balances with central banks 9,063,896 5,495,284
Obligatory balances with central banks (Note 19)
166,987 158,031
Total cash and balances with central banks (Note 19)
9,230,883 5,653,315
Loans and advances to banks with original maturity less than three months 191,314 326,426
Restricted loans and advances to banks
100,318 76,358
Total loans and advances to banks (Note 19)
291,632 402,784
Restricted loans and advances to banks include collaterals under derivative transactions of €41,068
thousand (2020: €34,032 thousand) which are not immediately available for use by the Group, but are
released once the transactions are terminated.
43. Leases
The Group is a lessee for commercial properties such as office and branch buildings. The basic terms for
lease contracts relating to the branch network are primarily uniform, irrespective of lessors, with the non-
cancellable rental period being two years. The Group has the option to extend the tenancy for four further
periods of two years each. The Group has the right at any time after the expiry of the initial term to
terminate the present rental agreement by providing notice (usually 3 or 6 months’ notice) to the lessor.
Depending on the terms agreed, the rent is adjusted at the end of each renewal period, according to the
current rates of the area and considering the relevant legislation.
Office buildings are leased by the Group for the operation of administrative functions. The basic terms for
new lease contracts and the current practice are substantially the same with those for lease contracts of
branches.
During the year ended 31 December 2020 the lease liability was remeasured due to changes in future lease
payments. During the year ended 31 December 2020 the lease term of existing contracts was re-assessed
using the assumptions as detailed in Note 5.13.
The carrying amounts of the Group’s RoU assets and lease liabilities and the movement during the year
ended 31 December 2021 and the year ended 31 December 2020 is presented in the table below:
2021
RoU asset
(Note 25)
Lease
Liabilities
(Note 34)
€000 €000
1 January 46,070 (45,955)
Depreciation charge for the year (Note 15) (7,520) -
New leases (Note 25) 1,148 (1,148)
Assets derecognised (Note 25) (6,117) 5,606
Interest expense (Note 8) - (121)
Cash outflows-payments
- 7,637
31 December
33,581 (33,981)
173
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
43. Leases (continued)
2020
RoU asset
(Note 25)
Lease
Liabilities
(Note 34)
€000 €000
1 January 30,388 (29,704)
Assets derecognised (Note 25) (2,399) 2,399
Depreciation charge for the year (Note 15) (8,855) -
Interest expense (Note 8) - (489)
Remeasurement of lease liability 26,936 (26,787)
Cash outflows-payments
- 8,626
31 December
46,070 (45,955)
RoU assets comprised of leases of buildings and are presented within Property, disclosed in Note 25.
Cash outflows relate to lease payments made during the year.
The analysis of lease liabilities based on remaining contractual maturity is disclosed in Note 47.
174
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
44. Analysis of assets and liabilities by expected maturity
2021 2020
Less than
one year
Over one
year
Total
Less than
one year
Over one
year
Total
Assets
€000 €000 €000 €000 €000 €000
Cash and balances with
central banks
9,063,896 166,987 9,230,883 5,495,284 158,031 5,653,315
Loans and advances to
banks
191,314 100,318 291,632 326,426 76,358 402,784
Derivative financial assets 4,556 2,097 6,653 5,556 19,071 24,627
Investments including
investments pledged as
collateral
366,420 1,772,743 2,139,163 371,953 1,541,161 1,913,114
Loans and advances to
customers
1,018,312 8,818,093 9,836,405 1,369,576 8,516,471 9,886,047
Life insurance business
assets attributable to
policyholders
14,111 537,686 551,797 15,078 459,109 474,187
Prepayments, accrued
income and other assets
139,988 476,231 616,219 144,159 105,718 249,877
Stock of property 267,480 844,124 1,111,604 341,698 1,007,911 1,349,609
Deferred tax assets 37,909 227,572 265,481 37,909 303,451 341,360
Property, equipment and
intangible assets
- 436,164 436,164 - 457,730 457,730
Investment properties 32,139 85,606 117,745 25,244 102,844 128,088
Investment in associates and
joint venture
- - - - 2,462 2,462
Non-current assets and
disposal groups held for sale
358,951 - 358,951 630,931 - 630,931
11,495,076 13,467,621 24,962,697 8,763,814 12,750,317 21,514,131
Liabilities
Deposits by banks 100,530 356,509 457,039 82,250 309,699 391,949
Funding from central banks 2,969,600 - 2,969,600 - 994,694 994,694
Derivative financial liabilities 4,830 27,622 32,452 6,805 39,173 45,978
Customer deposits 6,909,913 10,620,970 17,530,883 5,242,058 11,291,154 16,533,212
Insurance liabilities 91,758 644,443 736,201 91,467 580,136 671,603
Accruals, deferred income
and other liabilities and
pending litigation, claims,
regulatory and other matters
273,940 192,145 466,085 258,665 224,842 483,507
Loan stock 38,561 604,214 642,775 172,152 100,000 272,152
Deferred tax liabilities
937 45,498 46,435 - 45,982 45,982
10,390,069 12,491,401 22,881,470 5,853,397 13,585,680 19,439,077
The main assumptions used in determining the expected maturity of assets and liabilities are set out below.
The investments are classified in the relevant time band based on expectations as to their realisation. In
most cases this is the maturity date, unless there is an indication that the maturity will be prolonged or
there is an intention to sell, roll or replace the security with a similar one.
Performing loans and advances to customers in Cyprus are classified based on the contractual repayment
schedule. Overdraft accounts are classified in the ‘Over one year’ time band. The Stage 3 Loans are
classified in the ‘Over one year’ time band except cash flows from expected receipts which are included
within time bands, according to historic amounts of receipts in the recent months.
Stock of property is classified in the relevant time band based on expectations as to its realisation.
A percentage of customer deposits maturing within one year is classified in the ‘Over one year’ time band,
based on the observed behavioural analysis.
The expected maturity of all prepayments, accrued income and other assets and accruals, deferred income
and other liabilities is the same as their contractual maturity. If they do not have a contractual maturity, the
expected maturity is based on the timing the asset is expected to be realised and the liability is expected to
be settled.
175
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk
In the ordinary course of its business the Group is exposed to credit risk which is monitored through various
control mechanisms across all Group entities in order to prevent undue risk concentrations and to price
credit facilities and products on a risk-adjusted basis.
Credit risk is the risk that arises from the possible failure of one or more customers to discharge their credit
obligations towards the Group.
The Credit Risk Management department in co-operation with the Credit Risk Control and Monitoring
department set the Group’s credit disbursement policies and monitor compliance with credit risk policy
applicable to each business line and the quality of the Group’s loans and advances portfolio through the
timely credit risk assessment of customers. The credit exposures of related accounts are aggregated and
monitored on a consolidated basis.
The Credit Risk Management department, in co-operation with the Credit Risk Control and Monitoring
department, safeguard the effective management of credit risk at all stages of the credit cycle, monitor the
quality of decisions and processes and ensure that the credit sanctioning function is being properly
managed.
The credit policies are combined with the methods used for the assessment of the customers’
creditworthiness (credit rating and credit scoring systems).
The loan portfolio is analysed on the basis of assessments about the customers’ creditworthiness, their
economic sector of activity and geographical concentration.
The credit risk exposure of the Group is diversified across the various sectors of the economy. Credit Risk
Management determines the prohibitive/high credit risk sectors of the economy and sets out stricter policy
rules for these sectors, according to their degree of riskiness.
The Market Risk department assesses the credit risk relating to exposures to Credit Institutions and
Governments and other debt securities. Models and limits are presented to and approved by the Board of
Directors, through the relevant authority based on the authorisation level limits.
The Group’s significant judgements, estimates and assumptions regarding the determination of the level of
provisions for impairment are described in Note 5 ‘Significant and other judgements, estimates and
assumptions’ of these Consolidated Financial Statements.
45.1 Maximum exposure to credit risk and collateral and other credit enhancements
Loans and advances to customers
The Credit Risk Management department determines the amount and type of collateral and other credit
enhancements required for the granting of new loans to customers.
The main types of collateral obtained by the Group are mortgages on real estate, cash collateral/blocked
deposits, bank guarantees, government guarantees, pledges of equity securities and debt instruments of
public companies, fixed and floating charges over corporate assets, assignment of life insurance policies,
assignment of rights on certain contracts and personal and corporate guarantees.
The Group regularly monitors the changes in the market value of the collateral and, where necessary,
requests the pledging of additional collateral in accordance with the relevant agreement.
Off-balance sheet exposures
The Group offers guarantee facilities to its customers under which the Group may be required to make
payments on their behalf and enters into commitments to extend credit lines to secure their liquidity needs.
Letters of credit and guarantee facilities (including standby letters of credit) commit the Group to make
payments on behalf of customers in the event of a specific act, generally related to the import or export of
goods. Such commitments expose the Group to risks similar to those of loans and advances and are
therefore monitored by the same policies and control processes.
176
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.1 Maximum exposure to credit risk and collateral and other credit enhancements
(continued)
Other financial instruments
Collateral held as security for financial assets other than loans and advances to customers is determined by
the nature of the financial instrument. Debt securities and other eligible bills are generally unsecured with
the exception of asset-backed securities and similar instruments, which are secured by pools of financial
assets. In addition, some debt securities are government-guaranteed.
The Group has chosen the ISDA Master Agreement for documenting its derivatives activity. It provides the
contractual framework within which dealing activity across a full range of over-the-counter (OTC) products
is conducted and contractually binds both parties to apply close-out netting across all outstanding
transactions covered by an agreement, if either party defaults. In most cases the parties execute a Credit
Support Annex (CSA) in conjunction with the ISDA Master Agreement. Under a CSA, the collateral is passed
between the parties in order to mitigate the market contingent counterparty risk inherent in their open
positions. As at 31 December 2021, the majority of derivative exposures are covered by ISDA netting
arrangements. A detailed analysis of derivative asset and liability exposures is available in Note 21.
Information about the Group’s collaterals under derivative transactions is provided in Note 42.
Settlement risk arises in any situation where a payment in cash or securities is made in the expectation of a
corresponding receipt in securities or cash. The Group sets daily settlement limits for each counterparty.
Settlement risk is mitigated when transactions are effected via established payment systems or on a
delivery upon payment basis.
The table below presents the maximum exposure to credit risk, the tangible and measurable collateral and
credit enhancements held and the net exposure to credit risk, that is the exposure after taking into account
the impairment loss and tangible and measurable collateral and credit enhancements held. Personal
guarantees are an additional form of collateral, but are not included in the information below since it is
impracticable to estimate their fair value.
The fair value of the collateral presented in the tables below is capped to the carrying value of the loans and
advances to customers.
177
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.1 Maximum exposure to credit risk and collateral and other credit enhancements (continued)
Fair value of collateral and credit enhancements held by the Group
Maximum
exposure to
credit risk
Cash Securities
Letters of credit/
guarantee
Property Other Surplus collateral Net collateral
Net exposure to
credit risk
2021
€000 €000 €000 €000 €000 €000 €000 €000 €000
Balances with central banks (Note 19) 9,087,968 - - - - - - - 9,087,968
Loans and advances to banks (Note 19) 291,632 3,490 - - - - - 3,490 288,142
FVPL debt securities (Note 20) 6,034 - - - - - - - 6,034
Debt securities classified at amortised cost and
FVOCI (Note 20)
1,924,354 - - - - - - - 1,924,354
Derivative financial instruments (Note 21) 6,653 - - - - - - - 6,653
Loans and advances to customers (Note 23) 9,836,405 476,390 587,309 140,995 15,150,658 265,660 (7,781,292) 8,839,720 996,685
Loans and advances to customers classified as
held for sale (Note 29)
250,370 85 88 2,954 487,743 36,431 (279,895) 247,406 2,964
Debtors (Note 28) 36,540 - - - - - - - 36,540
Reinsurers' share of insurance contract
liabilities (Note 28)
55,323 - - - - - - - 55,323
Deferred purchase payment consideration
(Note 28)
299,766 - - - - - - - 299,766
Other assets (Note 28)
57,158 - - - - - - - 57,158
On-balance sheet total
21,852,203 479,965 587,397 143,949 15,638,401 302,091 (8,061,187) 9,090,616 12,761,587
Contingent liabilities
Acceptances and endorsements 4,625 285 - - 4,334 6 - 4,625 -
Guarantees 609,830 105,508 4,898 2,555 177,171 391 - 290,523 319,307
Commitments
Documentary credits 11,264 729 - - 5,488 19 - 6,236 5,028
Undrawn formal stand-by facilities, credit lines
and other commitments to lend
1,950,665 28,541 1,006 1,182 420,337 18,976 - 470,042 1,480,623
Off-balance sheet total
2,576,384 135,063 5,904 3,737 607,330 19,392 - 771,426 1,804,958
24,428,587 615,028 593,301 147,686 16,245,731 321,483 (8,061,187) 9,862,042 14,566,545
178
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.1 Maximum exposure to credit risk and collateral and other credit enhancements (continued)
Fair value of collateral and credit enhancements held by the Group
Maximum
exposure to
credit risk
Cash Securities
Letters of credit/
guarantee
Property Other Surplus collateral Net collateral
Net exposure to
credit risk
2020
€000 €000 €000 €000 €000 €000 €000 €000 €000
Balances with central banks (Note 19) 5,513,629 - - - - - - - 5,513,629
Loans and advances to banks (Note 19) 402,784 1,190 - - - - - 1,190 401,594
FVPL debt securities (Note 20) 19,118 - - - - - - - 19,118
Debt securities classified at amortised cost and FVOCI
(Note 20)
1,689,726 - - - - - - - 1,689,726
Derivative financial instruments (Note 21) 24,627 - - - - - - - 24,627
Loans and advances to customers (Note 23) 9,886,047 440,034 582,867 158,765 14,005,567 1,517,072 (7,765,182) 8,939,123 946,924
Loans and advances to customers classified as held for
sale (Note 29)
493,037 806 271 6,121 1,229,782 50,263 (807,942) 479,301 13,736
Cash and non-obligatory balances with central banks
classified as held for sale (Note 29)
68,425 - - - - - - - 68,425
Debtors (Note 28) 39,011 - - - - - - - 39,011
Reinsurers' share of insurance contract liabilities (Note
28)
53,479 - - - - - - - 53,479
Other assets (Note 28)
63,200 - - - - - - - 63,200
On-balance sheet total
18,253,083 442,030 583,138 164,886 15,235,349 1,567,335 (8,573,124) 9,419,614 8,833,469
Contingent liabilities
Acceptances and endorsements 4,655 277 2 - 3,869 507 - 4,655 -
Guarantees 619,530 110,304 2,305 1,332 123,283 43,154 - 280,378 339,152
Commitments
Documentary credits 14,866 1,854 169 - 4,992 815 - 7,830 7,036
Undrawn formal stand-by facilities, credit lines and
other commitments to lend
1,986,291 26,194 643 1,479 372,670 54,996 - 455,982 1,530,309
Off-balance sheet total
2,625,342 138,629 3,119 2,811 504,814 99,472 - 748,845 1,876,497
20,878,425 580,659 586,257 167,697 15,740,163 1,666,807 (8,573,124) 10,168,459 10,709,966
The contingent liabilities and commitments include exposures relating to loans and advances to customers classified as held for sale amounting to €1,286
thousand (2020: €2,188 thousand), which relate to the Cyprus geographical area.
179
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.2 Credit risk concentration of loans and advances to customers
There are restrictions on loan concentrations which are imposed by the Banking Law in Cyprus, the relevant
CBC Directives and CRR. The Group’s risk appetite statement imposes stricter concentration limits which are
monitored by the Group.
The credit risk concentration, which is based on industry (economic activity) and business line
concentrations, as well as geographical concentration, is presented below.
The geographical concentration, for credit risk concentration purposes, is based on the Group’s Country Risk
Policy which is followed for monitoring the Group's exposures. Market Risk is responsible for analysing the
country risk of exposures. ALCO reviews the country risk of exposures on a quarterly basis and the Board,
through its Risk Committee, reviews the country risk of exposures and any breaches of country risk limits
on a regular basis and at least annually.
The table below presents the geographical concentration of loans and advances to customers by country of
risk based on the country of residency for individuals and the country of registration for companies. Loans
and advances to customers are presented separately for countries with high concentration and all other
countries with low concentration are presented within 'Other countries' as per Group policy.
2021
Cyprus Greece
United
Kingdom
Romania Russia
Other
countries
Gross loans at
amortised cost
By economic activity
€000 €000 €000 €000 €000 €000 €000
Trade 977,703 505 122 60 3,351 146 981,887
Manufacturing 303,372 179 - - 1,212 25,674 330,437
Hotels and catering 881,205 33,422 37,450 - - 40,123 992,200
Construction 510,928 9,005 108 2,108 646 58 522,853
Real estate 959,891 125,123 1,950 11,443 - 49,293 1,147,700
Private individuals 4,379,843 9,185 121,260 1,057 37,315 73,997 4,622,657
Professional and other
services
543,424 1,007 5,516 875 16,492 35,142 602,456
Other sectors
458,005 7 40 - 8 182,285 640,345
9,014,371 178,433 166,446 15,543 59,024 406,718 9,840,535
2021
Cyprus Greece
United
Kingdom
Romania Russia
Other
countries
Gross loans at
amortised cost
By business line
€000 €000 €000 €000 €000 €000 €000
Corporate 2,018,926 9,430 60 99 15,778 113 2,044,406
Global corporate 1,417,643 159,349 44,132 11,742 - 320,730 1,953,596
SMEs 1,038,599 773 1,869 2,047 4,701 2,345 1,050,334
Retail
- housing 3,068,097 3,466 47,742 629 4,513 26,819 3,151,266
- consumer, credit cards and
other
884,231 1,101 760 126 237 2,232 888,687
Restructuring
- corporate 60,446 - 526 - 32 1,213 62,217
- SMEs 69,501 - 338 - - 340 70,179
- retail housing 80,730 152 3,058 - 392 752 85,084
- retail other 32,611 14 132 - 3 238 32,998
Recoveries
- corporate 35,010 - - 589 219 256 36,074
- SMEs 30,505 - 2,557 2 3,699 2,554 39,317
- retail housing 109,945 382 45,158 167 9,254 18,213 183,119
- retail other 54,959 30 4,356 4 1,557 1,304 62,210
International banking
services
76,314 2,402 15,211 138 18,639 23,214 135,918
Wealth management
36,854 1,334 547 - - 6,395 45,130
9,014,371 178,433 166,446 15,543 59,024 406,718 9,840,535
180
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.2 Credit risk concentration of loans and advances to customers (continued)
2020
Cyprus Greece
United
Kingdom
Romania Russia
Other
countries
Gross loans at
amortised cost
By economic activity
€000 €000 €000 €000 €000 €000 €000
Trade 1,014,445 717 252 3,767 7,291 112 1,026,584
Manufacturing 350,403 389 177 704 1,399 31,717 384,789
Hotels and catering 875,572 35,989 34,736 504 - 40,185 986,986
Construction 613,895 8,689 123 2,786 741 234 626,468
Real estate 867,601 127,342 1,899 33,484 - 41,223 1,071,549
Private individuals 4,670,357 8,024 163,613 1,202 48,361 84,830 4,976,387
Professional and other
services
652,928 407 5,711 3,968 23,074 39,933 726,021
Other sectors
432,569 13 219 838 5 168,175 601,819
9,477,770 181,570 206,730 47,253 80,871 406,409 10,400,603
2020 (restated)
Cyprus Greece
United
Kingdom
Romania Russia
Other
countries
Gross loans at
amortised cost
By business line
€000 €000 €000 €000 €000 €000 €000
Corporate 1,922,810 8,949 94 605 18,913 2,760 1,954,131
Global corporate 1,344,983 163,153 41,334 35,546 9,308 302,734 1,897,058
SMEs 1,081,773 708 2,881 2,393 4,361 2,337 1,094,453
Retail
- housing 2,862,802 3,052 57,627 623 6,051 25,622 2,955,777
- consumer, credit cards
and other
884,151 1,286 1,507 196 256 2,061 889,457
Restructuring
- corporate 165,162 - 532 - - 5,323 171,017
- SMEs 98,931 - 883 - 97 240 100,151
- retail housing 143,540 182 3,600 130 377 1,591 149,420
- retail other 79,618 202 118 - 8 18 79,964
Recoveries
- corporate 30,961 - 9 4,949 1 257 36,177
- SMEs 57,559 9 3,154 2,643 8,079 3,770 75,214
- retail housing 374,056 326 70,621 160 11,947 27,952 485,062
- retail other 337,500 34 6,108 4 304 1,890 345,840
International banking
services
68,923 2,905 18,262 4 21,169 24,075 135,338
Wealth management
25,001 764 - - - 5,779 31,544
9,477,770 181,570 206,730 47,253 80,871 406,409 10,400,603
Following a reorganisation of the restructuring and recoveries portfolio in early 2021 and mainly of the
terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business
lines. As a result, comparative information has been restated to present information on a consistent basis.
The table below presents the gross loans and advances to customers for ‘Restructuring’ and ‘Recoveries’
business lines as previously presented in the 2020 Annual Financial Report.
181
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.2 Credit risk concentration of loans and advances to customers (continued)
2020
Cyprus Greece
United
Kingdom
Romania Russia
Other
countries
Gross loans at
amortised cost
By business line
€000 €000 €000 €000 €000 €000 €000
Restructuring
- corporate 175,386 - 524 - - 5,324 181,234
- SMEs 86,644 189 1,633 - 263 133 88,862
- retail housing 130,661 182 2,849 130 219 1,703 135,744
- retail other 94,560 13 127 - - 12 94,712
Recoveries
- corporate 20,388 - - 7,592 - 23 28,003
- SMEs 87,276 9 275 - 1,465 1,728 90,753
- retail housing 364,775 326 73,460 160 18,511 30,042 487,274
- retail other
327,637 34 6,157 4 355 2,076 336,263
1,287,327 753 85,025 7,886 20,813 41,041 1,442,845
The loans and advances to customers include lending exposures in Cyprus with collaterals in Greece with a
carrying value as at 31 December 2021 of €100,039 thousand (2020: €85,424 thousand).
The loan and advances to customers reported within 'Other countries' as at 31 December 2021 include
exposures of €3,6 million in Ukraine (2020: €4,8 million).
182
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.3 Credit risk concentration of loans and advances to customers classified as held for sale
Economic activity, geographical and business line concentrations of Group loans and advances to customers
at amortised cost classified as held for sale are presented in the table below.
2021
Cyprus
United
Kingdom
Romania Russia
Other
countries
Gross loans at
amortised cost
By economic activity
€000 €000 €000 €000 €000 €000
Trade 56,859 - 514 - - 57,373
Manufacturing 24,688 1 110 - - 24,799
Hotels and catering 14,794 1 278 - - 15,073
Construction 28,226 - 231 - - 28,457
Real estate 4,575 - 9,395 - - 13,970
Private individuals 369,182 1,070 55 804 4,087 375,198
Professional and other services 27,866 2 1,466 - - 29,334
Other sectors
11,476 - 77 - 32 11,585
537,666 1,074 12,126 804 4,119 555,789
2021
Cyprus
United
Kingdom
Romania Russia
Other
countries
Gross loans at
amortised cost
By business line
€000 €000 €000 €000 €000 €000
Global corporate - - 10,441 - 32 10,473
SMEs - - 231 - - 231
Retail
- housing 153 - - - - 153
- consumer, credit cards and other 2 - - - - 2
Restructuring
- corporate 374 - - - - 374
- SMEs 5,301 - - - - 5,301
- retail housing 23,769 501 - - 34 24,304
- retail other 12,702 - - - - 12,702
Recoveries
- corporate 8,090 - 1,111 - - 9,201
- SMEs 17,923 1 343 766 381 19,414
- retail housing 238,791 566 - 38 3,210 242,605
- retail other
230,561 6 - - 462 231,029
537,666 1,074 12,126 804 4,119 555,789
2020
Cyprus Greece
United
Kingdom
Russia
Other
countries
Gross loans
at amortised
cost
By economic activity
€000 €000 €000 €000 €000 €000
Trade 137,088 - - - - 137,088
Manufacturing 49,724 84 305 - 560 50,673
Hotels and catering 30,266 - 496 - 29 30,791
Construction 151,907 - 8 26 76 152,017
Real estate 68,685 - - - 314 68,999
Private individuals 712,742 1,423 16,225 10,004 14,969 755,363
Professional and other services 85,933 199 62 1,093 192 87,479
Other sectors
58,845 - - - - 58,845
1,295,190 1,706 17,096 11,123 16,140 1,341,255
183
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.3 Credit risk concentration of loans and advances to customers classified as held for sale
(continued)
2020 (restated)
Cyprus Greece
United
Kingdom
Russia
Other
countries
Gross loans at
amortised cost
By business line
€000 €000 €000 €000 €000 €000
SMEs 3 - - - - 3
Retail
- housing 40 - - - - 40
- consumer, credit cards and other 23 - - - - 23
Restructuring
- corporate 64,957 - - - - 64,957
- SMEs 84,811 - 257 - 254 85,322
- retail housing 66,250 - 1,689 163 350 68,452
- retail other 29,052 1 327 - - 29,380
Recoveries
- corporate 85,548 - - 462 103 86,113
- SMEs 371,625 149 2,407 919 1,844 376,944
- retail housing 312,890 1,305 10,547 7,649 10,227 342,618
- retail other
279,991 251 1,869 1,930 3,362 287,403
1,295,190 1,706 17,096 11,123 16,140 1,341,255
Following a reorganisation of the restructuring and recoveries portfolio in early 2021 and mainly of the
terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business
lines. As a result, comparative information has been restated to present information on a consistent basis.
The table below presents the gross loans and advances to customers classified as held for sale for
‘Restructuring’ and ‘Recoveries’ business lines as previously presented in the 2020 Annual Financial Report.
2020
Cyprus Greece
United
Kingdom
Russia
Other
countries
Gross loans at
amortised cost
By business line
€000 €000 €000 €000 €000 €000
Restructuring
- corporate 65,947 - - - - 65,947
- SMEs 117,541 1 1,734 163 368 119,807
- retail housing 21,584 - 402 - 76 22,062
- retail other 39,998 - 137 - 160 40,295
Recoveries
- corporate 132,494 - 1,164 3,552 2,918 140,128
- SMEs 365,829 149 2,993 842 1,842 371,655
- retail housing 298,136 1,305 9,019 5,705 7,492 321,657
- retail other
253,595 251 1,647 861 3,284 259,638
1,295,124 1,706 17,096 11,123 16,140 1,341,189
184
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.4 Analysis of loans and advances to customers by staging
Stage 1 Stage 2 Stage 3 POCI Total
2021 €000 €000 €000 €000 €000
Gross loans at amortised cost
before residual fair value
adjustment on initial recognition
7,488,354 1,721,231 576,873 159,755 9,946,213
Residual fair value adjustment on
initial recognition
(69,659) (22,051) (3,530) (10,438) (105,678)
Gross loans at amortised cost
7,418,695 1,699,180 573,343 149,317 9,840,535
Cyprus 7,418,432 1,699,180 545,327 149,317 9,812,256
Other Countries
263 - 28,016 - 28,279
7,418,695 1,699,180 573,343 149,317 9,840,535
Stage 1 Stage 2 Stage 3 POCI Total
2020 €000 €000 €000 €000 €000
Gross loans at amortised cost
before residual fair value
adjustment on initial recognition
6,681,481 2,148,946 1,380,926 335,852 10,547,205
Residual fair value adjustment on
initial recognition
(72,591) (25,815) (9,376) (38,820) (146,602)
Gross loans at amortised cost
6,608,890 2,123,131 1,371,550 297,032 10,400,603
Cyprus 6,608,309 2,123,131 1,306,992 297,032 10,335,464
Other countries
581 - 64,558 - 65,139
6,608,890 2,123,131 1,371,550 297,032 10,400,603
Loans and advances to customers classified as held for sale
Stage 1 Stage 2 Stage 3 POCI Total
2021 €000 €000 €000 €000 €000
Gross loans at amortised cost
before residual fair value
adjustment on initial recognition
- 2,132 476,538 96,209 574,879
Residual fair value adjustment on
initial recognition
- (57) (2,079) (16,954) (19,090)
Gross loans at amortised cost
- 2,075 474,459 79,255 555,789
Cyprus - 2,075 463,774 79,255 545,104
Other countries
- - 10,685 - 10,685
- 2,075 474,459 79,255 555,789
Stage 1 Stage 2 Stage 3 POCI Total
2020 €000 €000 €000 €000 €000
Gross loans at amortised cost
before residual fair value
adjustment on initial recognition
6,177 21,801 1,138,587 221,365 1,387,930
Residual fair value adjustment on
initial recognition
(41) 397 (7,650) (39,381) (46,675)
Gross loans at amortised cost
6,136 22,198 1,130,937 181,984 1,341,255
Cyprus
6,136 22,198 1,130,937 181,984 1,341,255
6,136 22,198 1,130,937 181,984 1,341,255
Residual fair value adjustment
The residual fair value adjustment mainly relates to the loans and advances to customers acquired as part
of the acquisition of certain operations of Laiki Bank in 2013. In accordance with the provisions of IFRS 3,
this adjustment decreased the gross balance of loans and advances to customers. The residual fair value
adjustment is included within the gross balances of loans and advances to customers as at each balance
sheet date. However, for credit risk monitoring, the residual fair value adjustment as at each balance sheet
date is presented separately from the gross balances of loans and advances, as shown in the tables above.
The following tables present the Group’s gross loans and advances to customers at amortised cost by
staging and by business line concentration.
185
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.4 Analysis of loans and advances to customers by staging (continued)
2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 1,569,699 430,865 22,357 21,485 2,044,406
Global corporate 1,374,550 501,092 55,159 22,795 1,953,596
SMEs 812,211 215,012 12,522 10,589 1,050,334
Retail
- housing 2,769,274 320,473 49,633 11,886 3,151,266
- consumer, credit cards and
other
732,154 116,983 23,361 16,189 888,687
Restructuring
- corporate 6,092 35,613 14,255 6,257 62,217
- SMEs 14,016 16,417 34,083 5,663 70,179
- retail housing 3,075 15,528 62,934 3,547 85,084
- retail other 1,409 5,701 24,838 1,050 32,998
Recoveries
- corporate - - 29,600 6,474 36,074
- SMEs - - 35,685 3,632 39,317
- retail housing - - 154,469 28,650 183,119
- retail other 114 - 51,672 10,424 62,210
International banking services 92,193 40,715 2,775 235 135,918
Wealth management
43,908 781 - 441 45,130
7,418,695 1,699,180 573,343 149,317 9,840,535
2020 (restated) Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate
1,519,663 362,199 37,635 34,634
1,954,131
Global corporate
1,393,025 367,147 102,881 34,005
1,897,058
SMEs
740,305 325,412 17,731 11,005
1,094,453
Retail
- housing
2,223,620 651,980 68,644 11,533
2,955,777
- consumer, credit cards and
other
588,339 251,022 33,095 17,001
889,457
Restructuring
- corporate 29,108 64,706 60,719 16,484 171,017
- SMEs 13,263 25,167 54,003 7,718 100,151
- retail housing 2,475 13,599 127,558 5,788 149,420
- retail other 943 4,047 71,910 3,064 79,964
Recoveries
- corporate - - 29,431 6,746 36,177
- SMEs - - 65,287 9,927 75,214
- retail housing - - 404,337 80,725 485,062
- retail other 221 13 288,374 57,232 345,840
International banking services 76,160 49,222 9,767 189 135,338
Wealth management
21,768 8,617 178 981 31,544
6,608,890 2,123,131 1,371,550 297,032 10,400,603
186
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.4 Analysis of loans and advances to customers by staging (continued)
Loans and advances to customers classified as held for sale
The following table presents the Group’s gross loans and advances to customers at amortised cost classified
as held for sale as at 31 December 2021 and 2020, by staging and business line concentration.
2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Global Corporate - - 10,470 3 10,473
SMEs - - 231 - 231
Retail
- housing - - 153 - 153
- consumer, credit cards and
other
- - 2 - 2
Restructuring
- corporate - - 374 - 374
- SMEs - 718 3,842 741 5,301
- retail housing - 804 22,113 1,387 24,304
- retail other - 553 11,543 606 12,702
Recoveries
- corporate - - 8,507 694 9,201
- SMEs - - 17,653 1,761 19,414
- retail housing - - 204,956 37,649 242,605
- retail other
- - 194,615 36,414 231,029
- 2,075 474,459 79,255 555,789
2020 (restated) Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
SMEs - - - 3 3
Retail
- housing - 40 - - 40
- consumer, credit cards and
other
- 2 21 - 23
Restructuring
- corporate - 975 62,946 1,036 64,957
- SMEs 3,442 9,882 67,664 4,334 85,322
- retail housing 2,414 9,882 53,327 2,829 68,452
- retail other 280 1,417 26,665 1,018 29,380
Recoveries
- corporate - - 73,449 12,664 86,113
- SMEs - - 325,082 51,862 376,944
- retail housing - - 296,934 45,684 342,618
- retail other
- - 224,849 62,554 287,403
6,136 22,198 1,130,937 181,984 1,341,255
Following a reorganisation of the restructuring and recoveries portfolio in early 2021 and mainly of the
terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business
lines, as disclosed in Notes 45.2 and 45.3.
187
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.4 Analysis of loans and advances to customers by staging (continued)
The movement of the gross loans and advances to customers at amortised cost by staging, including the
loans and advances to customers classified as held for sale, is presented in the tables below:
Stage 1 Stage 2 Stage 3 POCI Total
2021 €000 €000 €000 €000 €000
1 January 6,615,026 2,145,329 2,502,487 479,016 11,741,858
Transfers to stage 1 1,053,432 (1,051,363) (2,069) - -
Transfers to stage 2 (575,203) 657,895 (82,692) - -
Transfers to stage 3 (15,136) (35,918) 51,054 - -
Foreign exchange and other
adjustments
15 1 3,994 (2) 4,008
Write offs (518) (843) (252,976) (40,657) (294,994)
Interest accrued and other
adjustments
136,340 104,182 119,123 31,535 391,180
New loans originated or
purchased and drawdowns of
existing facilities
1,614,893 85,901 4,046 11,481 1,716,321
Loans other than Helix 2 portfolio
derecognised or repaid (excluding
write offs)
(1,399,395) (190,449) (192,441) (76,968) (1,859,253)
Changes to contractual cash flows
due to modifications
(2,351) 3,461 (14,942) (2,119) (15,951)
Disposal of Helix 2 portfolio
(8,408) (16,941) (1,087,782) (173,714) (1,286,845)
31 December
7,418,695 1,701,255 1,047,802 228,572 10,396,324
Stage 1 Stage 2 Stage 3 POCI Total
2020 €000 €000 €000 €000 €000
1 January 6,945,045 1,504,188 3,172,423 560,371 12,182,027
Transfers to stage 1 551,657 (528,094) (23,563) - -
Transfers to stage 2 (1,180,335) 1,319,619 (139,284) - -
Transfers to stage 3 (20,831) (28,251) 49,082 - -
Foreign exchange and other
adjustments
10 (2) (4,951) 4 (4,939)
Write offs (1,496) (805) (359,257) (36,872) (398,430)
Interest accrued and other
adjustments
132,740 65,383 202,795 39,674 440,592
New loans originated or
purchased and drawdowns of
existing facilities
1,157,886 42,276 41,778 183 1,242,123
Loans other than Velocity 2
portfolio derecognised or repaid
(excluding write offs)
(971,374) (224,760) (321,136) (72,354) (1,589,624)
Changes to contractual cash flows
due to modifications
1,724 (4,225) (2,998) 1,133 (4,366)
Disposal of Velocity 2 portfolio
- - (112,402) (13,123) (125,525)
31 December
6,615,026 2,145,329 2,502,487 479,016 11,741,858
For revolving facilities, overdrafts and credit cards the net positive change in balance by stage excluding
write-offs is reported in ‘New loans originated’ and the net negative change is reported in ‘Loans
derecognised or repaid'.
188
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.4 Analysis of loans and advances to customers by staging (continued)
The movement of gross loans and advances to customers at amortised cost, in the Corporate, Global
corporate and Retail business lines in Cyprus (the country where the loans are managed), including loans
and advances to customers classified as held for sale, are presented in the tables below:
Corporate
Global
corporate
Retail
2021 €000 €000 €000
1 January 1,935,306 1,858,337 3,844,562
Transfers in/(out of) business line 39,690 (2,854) (2,808)
Write offs (106) (2,005) (1,704)
Interest accrued 60,360 70,644 89,885
New loans originated or purchased 471,370 435,512 628,425
Loans other than held for sale portfolios derecognised or repaid
(excluding write offs)
(477,348) (410,840) (519,142)
Changes to contractual cash flows due to modifications not resulting
in derecognition
(644) (918) 890
31 December
2,028,628 1,947,876 4,040,108
Corporate Global corporate Retail
2020 €000 €000 €000
1 January 1,953,170 1,845,777 3,688,137
Transfers (out of)/in business line (3,162) 22,046 (11,783)
Interest accrued, foreign exchange and other adjustments 52,673 24,402 90,158
Write offs (1,165) (19,191) (4,026)
New loans originated or purchased 319,385 261,281 508,773
Loans other than held for sale portfolios derecognised or repaid
(excluding write offs)
(380,501) (271,581) (428,755)
Changes to contractual cash flows due to modifications not resulting
in derecognition
(5,094) (4,397) 2,058
31 December
1,935,306 1,858,337 3,844,562
45.5 Credit quality of loans and advances to customers based on the internal credit rating
Credit scoring is the primary risk rating system for assessing obligor and transaction risk for the key
portfolios of BOC PCL. These portfolios are Corporate, Retail and SMEs. Corporate and SME clients include
legal entities. Retail includes individuals.
Scoring models use internal and external data to assess and 'score' borrowers and their credit quality, in
order to provide further input on managing limits for existing loans and collection activities. The data is
specific to the borrower but additional data which could affect the borrower’s behaviour is also used.
Credit score is one of the factors employed on new clients and management of existing clients. The credit
score of the borrower is used to assess the credit quality for each independent acquisition or account
management action, leading to an automated decision or guidance for an adjudicator. Credit scoring
enhances the credit decision quality and facilitates risk-based pricing where feasible.
Borrower score defines the rating of the borrower from a range of 1-8 where 8 is defined as defaulted. The
12 months default rates (PDs) are calculated per rating. These default rates are assumed to be the 12
month probability of default for the scored borrowers. The following table maps PD bands to various risk
levels for corporate, retail and SME exposures.
Unrated loans for corporate are assessed using the Group's in-house behavioural scorecard model for
corporate legal entities. Unrated loans for retail include qualifying revolving facilities without scoring (i.e.
prepaid cards) and other revolving facilities (i.e. financial guarantees) which are assigned a more generic
curve. Similarly unrated SME exposures are assigned a more generic segment curve.
New customers for corporate and SME legal entities and new lending for retail individuals are separately
disclosed since a time span of seven months is necessary in order to provide an accurate rating.
189
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.5 Credit quality of loans and advances to customers based on the internal credit rating
(continued)
The IFRS 9 PD models were calibrated during the fourth quarter of 2020 in order to include additional recent
historical observations (before the COVID-19 pandemic) and incorporate the latest scorecard models.
Overall there is an evident decrease both across ratings and portfolios PDs due to the release of PD overlays
related to the COVID-19 pandemic and the 9-month moratorium that took place in 2020.
2021 12-month PD
Rating
Corporate legal entities
%
Retail individuals
%
SME legal entities
%
1 1.38 0.80 0.36
2 2.20 0.79 0.75
3 2.37 1.68 2.22
4 3.42 3.24 7.70
5 5.32 6.24 12.96
6 5.82 10.04 17.87
7 11.89 27.14 36.63
2020 12-month PD
Rating
Corporate legal entities
%
Retail individuals
%
SME legal entities
%
1 3.77 2.24 0.82
2 5.93 2.37 1.66
3 6.30 4.15 4.32
4 9.22 7.48 11.75
5 13.65 13.14 21.80
6 15.08 22.44 29.92
7 29.50 53.47 63.00
Lower rating exposures demonstrate a better capacity to meet financial commitments, with lower
probability of default, whereas higher rating exposures require varying degrees of special attention and
default risk is of greater concern.
The tables below show the gross loans and advances to customers at amortised cost which are managed in
Cyprus, using the corporate legal entities, SMEs legal entities and retail individuals definition as per the
internal rating of BOC PCL.
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
Corporate legal entities
€000 €000 €000 €000 €000 €000
Rating 1
371,648 9,550 381,198 713,090 65,056 778,146
Rating 2
124,963 1,120 126,083 269,133 53,533 322,666
Rating 3
689,030 43,870 732,900 610,596 119,729 730,325
Rating 4
729,502 119,522 849,024 471,544 178,093 649,637
Rating 5
578,247 289,389 867,636 708,462 219,873 928,335
Rating 6
167,752 307,445 475,197 130,600 98,869 229,469
Rating 7
8,680 129,996 138,676 9,767 19,187 28,954
Unrated
120,016 106,826 226,842 34,075 140,432 174,507
New customers
386,841 49,745 436,586 221,325 2,588 223,913
3,176,679 1,057,463
4,234,142
3,168,592 897,360
4,065,952
Total Stage 3 and POCI
191,972 398,726
4,426,114 4,464,678
190
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.5 Credit quality of loans and advances to customers based on the internal credit rating
(continued)
2021 2020
Stage 1 Stage 2 Total
Stage 1
Stage 2 Total
Retail individuals €000 €000 €000
€000
€000 €000
Rating 1 795,577 37,566 833,143 693,768 96,548 790,316
Rating 2 965,269 34,373 999,642 743,838 136,888 880,726
Rating 3 756,588 53,053 809,641 615,175 163,727 778,902
Rating 4 562,838 81,779 644,617 432,447 211,631 644,078
Rating 5 224,332 80,133 304,465 141,377 133,226 274,603
Rating 6 114,346 105,725 220,071 83,489 143,947 227,436
Rating 7 27,568 101,290 128,858 46,760 114,183 160,943
Unrated - 2,681 2,681 - 2,715 2,715
New customers
292,088 15,808 307,896 269,584 15,502 285,086
3,738,606 512,408
4,251,014
3,026,438 1,018,367
4,044,805
Total Stage 3 and POCI
462,865 1,075,211
4,713,879 5,120,016
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
SMEs legal entities €000 €000 €000 €000 €000 €000
Rating 1 183,001 12,159 195,160 133,876 29,345 163,221
Rating 2 181,836 29,316 211,152 150,155 58,282 208,437
Rating 3 43,425 16,911 60,336 50,690 33,370 84,060
Rating 4 15,454 18,447 33,901 15,347 28,751 44,098
Rating 5 8,260 16,252 24,512 8,195 18,347 26,542
Rating 6 5,793 8,019 13,812 4,456 15,392 19,848
Rating 7 3,249 6,496 9,745 2,301 12,125 14,426
Unrated - 18,198 18,198 - 9,241 9,241
New customers
62,129 3,511 65,640 48,259 2,551 50,810
503,147 129,309
632,456
413,279 207,404
620,683
Total Stage 3 and POCI
45,560 168,808
678,016 789,491
Loans and advances to customers classified as held for sale
An analysis of gross loans and advances to customers classified as held for sale, as per the internal rating
system of BOC PCL is disclosed in the tables below.
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
Corporate legal entities €000 €000 €000 €000 €000 €000
Rating 3 - - - 31 193 224
Rating 5 - - - - 363 363
Rating 6 - - - - 106 106
Unrated
- - - - 485 485
- -
-
31 1,147
1,178
Total Stage 3 and POCI
64,759 267,609
64,759 268,787
191
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.5 Credit quality of loans and advances to customers based on the internal credit rating
(continued)
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
Retail legal entities €000 €000 €000 €000 €000 €000
Rating 1 - - - 23 70 93
Rating 2 - - - 105 70 175
Rating 3 - - - 108 43 151
Rating 4 - 111 111 568 583 1,151
Rating 5 - - - 942 1,985 2,927
Rating 6 - 98 98 126 3,749 3,875
Rating 7 - 1,464 1,464 2,585 11,460 14,045
New customers
- - - - 58 58
- 1,673
1,673
4,457 18,018
22,475
Total Stage 3 and POCI
400,861 801,289
402,534 823,764
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
SMEs legal entities €000 €000 €000 €000 €000 €000
Rating 2 - 55 55 161 - 161
Rating 3 - - - 19 8 27
Rating 4 - 326 326 65 226 291
Rating 5 - 1 1 50 146 196
Rating 6 - - - 760 156 916
Rating 7
- 20 20 593 2,497 3,090
- 402
402
1,648 3,033
4,681
Total Stage 3 and POCI
87,849 244,023
88,251 248,704
45.6 Contingent liabilities and commitments
The Group enters into various irrevocable commitments and contingent liabilities. These consist of
acceptances and endorsements, guarantees, documentary credits and undrawn formal stand-by facilities,
credit lines and other commitments to lend.
45.6.1 Contingent liabilities
An analysis of changes in the outstanding nominal amount of exposures and the corresponding ECLs are
disclosed in the tables below:
Stage 1 Stage 2 Stage 3 Total
2021 €000 €000 €000 €000
Exposures
1 January 208,410 363,019 52,756 624,185
Transfers to stage 1 151,638 (151,638) - -
Transfers to stage 2 (18,674) 22,983 (4,309) -
Transfers to stage 3 (143) (1,548) 1,691 -
Net increase/(decrease)
91,232 (96,492) (4,470) (9,730)
31 December
432,463 136,324 45,668 614,455
192
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.6 Contingent liabilities and commitments (continued)
45.6.1 Contingent liabilities (continued)
Stage 1 Stage 2 Stage 3 Total
2020 €000 €000 €000 €000
Exposures
1 January 430,293 159,924 98,683 688,900
Transfers to stage 1 6,146 (5,376) (770) -
Transfers to stage 2 (187,975) 217,131 (29,156) -
Transfers to stage 3 (4) (4,011) 4,015 -
Net increase/(decrease)
(40,050) (4,649) (20,016) (64,715)
31 December
208,410 363,019 52,756 624,185
Stage 1 Stage 2 Stage 3 Total
2021 €000 €000 €000 €000
ECL
1 January 42 695 18,370 19,107
Transfers to stage 1 14 (14) - -
Transfers to stage 2 (13) (273) 286 -
(Credit)/charge for the year*
(23) (284) 2,957 2,650
31 December
20 124 21,613 21,757
Individually assessed 12 32 21,613 21,657
Collectively assessed
8 92 - 100
20 124 21,613 21,757
Stage 1 Stage 2 Stage 3 Total
2020 €000 €000 €000 €000
ECL
1 January 21 70 21,904 21,995
Transfers to stage 1 10 (8) (2) -
Transfers to stage 2 (200) 305 (105) -
Transfers to stage 3 - (3,500) 3,500 -
Charge/(credit) for the year*
211 3,828 (6,927) (2,888)
31 December
42 695 18,370 19,107
Individually assessed 12 287 18,366 18,665
Collectively assessed
30 408 4 442
42 695 18,370 19,107
* The charge for the year mainly relates to changes to inputs and net exposure.
193
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.6 Contingent liabilities and commitments (continued)
45.6.1 Contingent liabilities (continued)
The credit quality of contingent liabilities as per the internal rating system of BOC PCL is disclosed in the
table below.
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
Corporate legal entities €000 €000 €000 €000 €000 €000
Rating 1 121,750 1,223 122,973 18,551 52,371 70,922
Rating 2 13,327 93 13,420 24 8,050 8,074
Rating 3 45,371 670 46,041 12,172 59,503 71,675
Rating 4 25,513 2,185 27,698 2,532 37,000 39,532
Rating 5 42,183 31,791 73,974 3,184 70,690 73,874
Rating 6 11,720 3,809 15,529 2,228 18,556 20,784
Rating 7 1,410 432 1,842 - 164 164
Unrated 29,487 60,193 89,680 30,678 79,731 110,409
New customers
75,832 - 75,832 85,153 2,830 87,983
366,593 100,396
466,989
154,522 328,895
483,417
Total Stage 3
35,207 44,625
502,196 528,042
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
SME legal entities €000 €000 €000 €000 €000 €000
Rating 1 30,241 78 30,319 22,858 3,407 26,265
Rating 2 7,949 1,217 9,166 5,667 2,790 8,457
Rating 3 1,592 223 1,815 1,540 590 2,130
Rating 4 365 111 476 430 254 684
Rating 5 42 6 48 53 178 231
Rating 6 3 - 3 18 122 140
Rating 7 554 32 586 163 1,871 2,034
Unrated - 21,316 21,316 - 10,390 10,390
New customers
25,124 65 25,189 23,159 170 23,329
65,870 23,048
88,918
53,888 19,772
73,660
Total Stage 3
9,781 7,692
98,699 81,352
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
Retail individuals €000 €000 €000 €000 €000 €000
Unrated
- 12,880 12,880 - 14,352 14,352
- 12,880
12,880
- 14,352
14,352
Total Stage 3
680 439
13,560 14,791
194
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.6 Contingent liabilities and commitments (continued)
45.6.2 Commitments
An analysis of changes in the outstanding exposures and the corresponding ECLs are disclosed in the tables
below:
Stage 1 Stage 2 Stage 3 Total
2021 €000 €000 €000 €000
Exposure
1 January
1,146,962 775,164 79,031
2,001,157
Transfers to stage 1
417,291 (416,743) (548)
-
Transfers to stage 2
(52,799) 52,799
-
Transfers to stage 3
(358) (1,165) 1,523
-
Net (decrease)/increase
(14,015) 2,515 (27,728)
(39,228)
31 December
1,497,081 412,570 52,278 1,961,929
Stage 1 Stage 2 Stage 3 Total
2020 €000 €000 €000 €000
Exposure
1 January 1,291,393 508,861 132,854 1,933,108
Transfers to stage 1 133,657 (132,525) (1,132) -
Transfers to stage 2 (399,593) 413,026 (13,433) -
Transfers to stage 3 (1,280) (2,753) 4,033 -
Net increase/(decrease)
122,785 (11,445) (43,291) 68,049
31 December
1,146,962 775,164 79,031 2,001,157
Stage 1 Stage 2 Stage 3 Total
2021 €000 €000 €000 €000
ECL
1 January 126 425 - 551
Transfers to stage 1 9 (9) - -
Transfers to stage 2 (32) 63 (31) -
(Credit)/charge for the year*
(84) (310) 31 (363)
31 December
19 169 - 188
Individually assessed 7 80 - 87
Collectively assessed
12 89 - 101
19 169 - 188
Stage 1 Stage 2 Stage 3 Total
2020 €000 €000 €000 €000
ECL
1 January 30 87 - 117
Transfers to stage 1 34 (34) - -
Transfers to stage 2 (128) 168 (40) -
(Credit)/charge for the year*
190 204 40 434
31 December
126 425 - 551
Individually assessed 36 111 - 147
Collectively assessed
90 314 - 404
126 425 - 551
*The charge in the year mainly relates to changes to inputs.
195
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.6 Contingent liabilities and commitments (continued)
45.6.2 Commitments (continued)
The credit quality of commitments, as per the internal rating system of BOC PCL is disclosed in the table
below.
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
Corporate legal entities €000 €000 €000 €000 €000 €000
Rating 1 256,764 8,352 265,116 241,799 28,308 270,107
Rating 2 41,484 3,397 44,881 19,069 57,360 76,429
Rating 3 128,429 10,627 139,056 64,983 74,480 139,463
Rating 4 58,322 10,107 68,429 30,570 57,489 88,059
Rating 5 58,708 82,198 140,906 27,382 50,681 78,063
Rating 6 12,239 16,047 28,286 3,093 16,443 19,536
Rating 7 154 1,627 1,781 28 61 89
Unrated 26,441 103,918 130,359 19,947 118,931 138,878
New customers
26,296 20,402 46,698 92,936 398 93,334
608,837 256,675
865,512
499,807 404,151
903,958
Total Stage 3
22,553 50,700
888,065 954,658
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
SME legal entities €000 €000 €000 €000 €000 €000
Rating 1 234,443 22,597 257,040 204,597 43,683 248,280
Rating 2 40,913 17,522 58,435 44,967 21,932 66,899
Rating 3 12,254 3,988 16,242 12,287 10,000 22,287
Rating 4 3,027 2,900 5,927 3,585 5,402 8,987
Rating 5 2,270 1,748 4,018 1,168 2,635 3,803
Rating 6 235 523 758 385 756 1,141
Rating 7 77 262 339 125 807 932
Unrated - 17,465 17,465 - 12,301 12,301
New customers
11,073 459 11,532 8,710 618 9,328
304,292 67,464
371,756
275,824 98,134
373,958
Total Stage 3
24,001 20,607
395,757 394,565
2021 2020
Stage 1 Stage 2 Total Stage 1 Stage 2 Total
Retail individuals €000 €000 €000 €000 €000 €000
Rating 1 244,760 29,865 274,625 179,709 99,239 278,948
Rating 2 115,852 10,877 126,729 58,949 58,456 117,405
Rating 3 55,987 12,732 68,719 25,306 46,873 72,179
Rating 4 30,358 7,642 38,000 14,508 28,034 42,542
Rating 5 8,553 8,621 17,174 4,893 16,434 21,327
Rating 6 4,095 6,756 10,851 2,422 9,759 12,181
Rating 7 711 2,984 3,695 199 4,036 4,235
Unrated - 7,926 7,926 - 7,567 7,567
New customers
123,636 1,028 124,664 85,345 2,481 87,826
583,952 88,431
672,383
371,331 272,879
644,210
Total Stage 3
5,724 7,724
678,107 651,934
196
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.7 Credit losses of loans and advances to customers, including loans and advances to
customers held for sale
The movement in ECL of loans and advances to customers, including the loans and advances to customers
held for sale, is as follows:
2021 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
1 January 22,619 49,127 1,376,412 204,477 1,652,635
Transfers to stage 1 18,228 (17,818) (410) - -
Transfers to stage 2 (2,361) 15,825 (13,464) - -
Transfers to stage 3 (430) (1,462) 1,892 - -
Impact on transfer between
stages during the year*
(11,600) (7,088) 4,781 (605) (14,512)
Foreign exchange and other
adjustments
- - 2,362 - 2,362
Write offs (518) (843) (252,895) (40,657) (294,913)
Interest (provided) not
recognised in the income
statement
- - 41,812 6,658 48,470
New loans originated or
purchased*
4,152 - - 233 4,385
Loans other than Helix 2 portfolio
derecognised or repaid (excluding
write offs)*
(632) (464) (26,886) (770) (28,752)
Write offs* 281 318 6,282 (19) 6,862
Changes to models and inputs
(changes in PDs, LGDs and EADs)
used for ECL calculations*
(10,259) 2,943 66,324 10,295 69,303
Changes to contractual cash flows
due to modifications not resulting
in derecognition*
(826) 1,647 (1,889) (2,262) (3,330)
Disposal of Helix 2 portfolio
(3,197) (12,802) (725,525) (109,569) (851,093)
31 December
15,457 29,383 478,796 67,781 591,417
Individually assessed 6,661 14,476 78,045 7,427 106,609
Collectively assessed
8,796 14,907 400,751 60,354 484,808
15,457 29,383 478,796 67,781 591,417
* Individual components of the ‘Impairment loss net of reversals on loans and advances to customers’ (Note
16).
The main driver for the impairment loss for the year ended 31 December 2021 is due to additional net
credit losses recorded of approximately €13 million on NPEs as part of the Group’s de-risking activities
(including additional ECL charge for Helix 2 disposal and ECL release on Helix 3 portfolio) and the impact of
the updated macroeconomic scenarios across all stages of approximately €8 million. There has been also a
net ECL charge of approximately €26 million following the cure model recalibration performed in the third
quarter of 2021, partially offset by the release of approximately €20 million ECL following the removal of
overlays brought forward from 2020.
197
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.7 Credit losses of loans and advances to customers, including loans and advances to
customers held for sale (continued)
2020 Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
1 January 16,665 25,380 1,555,339 206,166 1,803,550
Transfers to stage 1 11,956 (6,058) (5,898) - -
Transfers to stage 2 (3,751) 23,562 (19,811) - -
Transfers to stage 3 (1,347) (1,393) 2,740 - -
Impact on transfer between
stages during the year*
(4,008) 4,868 7,017 (191) 7,686
Foreign exchange and other
adjustments
- - (4,133) (81) (4,214)
Write offs (1,496) (807) (359,255) (36,872) (398,430)
Interest (provided) not
recognised in the income
statement
- - 68,919 9,939 78,858
New loans originated or
purchased*
5,431 - - - 5,431
Loans derecognised or repaid
(excluding write offs)*
(672) (902) (28,560) (4,206) (34,340)
Write offs* 1,032 812 30,650 6,509 39,003
Changes to models and inputs
(changes in PDs, LGDs and EADs)
used for ECL calculations*
2,176 1,418 224,710 34,648 262,952
Changes to contractual cash flows
due to modifications not resulting
in derecognition*
(3,367) 2,247 5,458 (101) 4,237
Disposal of Velocity 2 portfolio
- - (100,764) (11,334) (112,098)
31 December
22,619 49,127 1,376,412 204,477 1,652,635
Individually assessed 5,801 10,715 89,655 6,967 113,138
Collectively assessed
16,818 38,412 1,286,757 197,510 1,539,497
22,619 49,127 1,376,412 204,477 1,652,635
The analysis of credit losses of loans and advances to customers, including the loans and advances to
customers held for sale, by business line is presented in the table below:
Stage 1 Stage 2 Stage 3 POCI Total
2021 €000 €000 €000 €000 €000
Corporate 5,131 6,851 18,163 750 30,895
Global corporate 4,204 6,511 28,539 734 39,988
SMEs 1,653 3,242 8,151 276 13,322
Retail
- housing 1,615 2,868 7,045 317 11,845
- consumer, credit cards and
other
2,674 4,434 8,223 1,002 16,333
Restructuring
- corporate 40 1,397 5,015 2,292 8,744
- SMEs 79 1,139 13,970 884 16,072
- retail housing 3 708 20,005 775 21,491
- retail other 14 1,049 16,583 806 18,452
Recoveries
- corporate - - 21,374 3,518 24,892
- SMEs - - 26,338 2,045 28,383
- retail housing - - 152,596 27,732 180,328
- retail other - - 152,691 26,643 179,334
International banking services 33 1,181 102 6 1,322
Wealth management
11 3 1 1 16
15,457 29,383 478,796 67,781 591,417
198
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.7 Credit losses of loans and advances to customers, including loans and advances to
customers held for sale (continued)
Stage 1 Stage 2 Stage 3 POCI Total
2020 (restated) €000 €000 €000 €000 €000
Corporate 3,652 6,003 21,811 624 32,090
Global corporate 4,375 5,600 38,758 1,076 49,809
SMEs 2,352 4,263 7,182 363 14,160
Retail
- housing 4,616 6,947 12,259 437 24,259
- consumer, credit cards and
other
3,551 7,731 9,741 925 21,948
Restructuring
- corporate 286 4,014 55,586 2,863 62,749
- SMEs 2,114 6,683 49,512 3,519 61,828
- retail housing 1,398 6,020 73,348 3,197 83,963
- retail other 195 1,197 52,051 2,239 55,682
Recoveries
- corporate - - 65,917 10,452 76,369
- SMEs - - 245,825 35,644 281,469
- retail housing - - 373,743 67,590 441,333
- retail other 3 - 368,793 75,064 443,860
International banking services 67 658 1,707 5 2,437
Wealth management
10 11 179 479 679
22,619 49,127 1,376,412 204,477 1,652,635
Following a reorganisation of the restructuring and recoveries portfolio in early 2021 and mainly of the
terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business
lines. As a result, comparative information has been restated to present information on a consistent basis.
The table below presents the credit losses of loans and advances to customers, including the loans and
advances to customers held for sale, by staging and business line concentration for ‘Restructuring’ and
‘Recoveries’ business lines as previously presented in the 2020 Annual Financial Report.
Stage 1 Stage 2 Stage 3 POCI Total
2020 €000 €000 €000 €000 €000
Restructuring
- corporate 286 3,993 58,438 3,294 66,011
- SMEs 2,383 9,979 62,891 3,802 79,055
- retail housing 401 1,742 51,358 2,034 55,535
- retail other 923 2,200 57,810 2,688 63,621
Recoveries
- corporate - - 96,183 22,286 118,469
- SMEs - - 254,462 31,585 286,047
- retail housing - - 360,331 66,721 427,052
- retail other
3 - 343,302 68,158 411,463
3,996 17,914 1,284,775 200,568 1,507,253
199
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.7 Credit losses of loans and advances to customers, including loans and advances to
customers held for sale (continued)
The movement of the ECL allowance for the loans and advances to customers in the Corporate, Global
corporate and Retail business lines in Cyprus (the country where the loans are managed), including ECL
allowance for loans and advances to customers held for sale, is presented in the table below:
Corporate
Global
corporate
Retail
2021 €000 €000 €000
1 January 16,582 26,080 45,730
Transfer in/(out of) the business line 1,648 (482) (4,440)
Write offs (106) (2,005) (1,704)
Interest (provided) not recognised in the income statement 267 2,381 934
New loans originated or purchased* 1,018 747 1,847
Loans derecognised or repaid (excluding write offs)* 82 (1,706) (971)
Write offs* 1 (8) 449
Changes to models and inputs (changes in PDs, LGDs and EADs)
used for ECL calculations*
(2,192) 2,614 (6,779)
Changes to contractual cash flows due to modifications not resulting
in derecognition*
638 9,942 (1,097)
Impact on transfer between stages during the year*
(2,218) (5,419) (5,754)
31 December
15,720 32,144 28,215
Corporate
Global
corporate
Retail
2020 €000 €000 €000
1 January 15,354 33,982 49,257
Transfer out of the business line (1,170) (1,909) (7,706)
Write offs (1,165) (19,191) (4,026)
Interest (provided) not recognised in the income statement 197 1,052 620
New loans originated or purchased* 620 2,568 1,456
Loans derecognised or repaid (excluding write offs)* (907) 1,976 (932)
Write offs* 16 769 2,178
Changes to models and inputs (changes in PDs, LGDs and EADs)
used for ECL calculations*
911 7,196 2,530
Changes to contractual cash flows due to modifications not resulting
in derecognition*
327 (1,340) 1,313
Impact on transfer between stages during the year* 2,512 977 1,040
Disposal of Velocity 2 portfolio
(113) - -
31 December
16,582 26,080 45,730
Credit losses of loans and advances to customers as at 31 December 2021 and 2020 include credit losses
relating to loans and advances to customers classified as held for sale as presented in the table below:
Stage 1 Stage 2 Stage 3 POCI Total
€000 €000 €000 €000 €000
31 December 2021
- 710 262,706 42,003 305,419
31 December 2020
3,260 12,254 721,470 111,234 848,218
During the year ended 31 December 2021 the total non-contractual write-offs recorded by the Group
amounted to €268,560 thousand (2020: €294,932 thousand). The contractual amount outstanding on
financial assets that were written off during the year ended 31 December 2021 and that are still subject to
enforcement activity is €984,329 thousand (2020: €1,062,224 thousand).
200
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.7 Credit losses of loans and advances to customers, including loans and advances to
customers held for sale (continued)
Assumptions have been made about the future changes in property values, as well as the timing for the
realisation of collateral, taxes and expenses on the repossession and subsequent sale of the collateral as
well as any other applicable haircuts. Indexation has been used as the basis to estimate updated market
values of properties supplemented by management judgement where necessary given the difficulty in
differentiating between short term impacts and long term structural changes and the shortage of market
evidence for comparison purposes. Assumptions were made on the basis of macroeconomic scenario for
future changes in property prices, and are capped to zero for all scenarios in case of any future projected
increase, whereas any future projected decrease is taken into consideration.
At 31 December 2021 the weighted average haircut (including liquidity haircut and selling expenses) used in
the collectively assessed provision calculation for loans and advances to customers is approximately 32%
under the baseline scenario (2020: approximately 32%), excluding those classified as held for sale.
The timing of recovery from real estate collaterals used in the collectively assessed provision calculation for
loans and advances to customers has been estimated to be on average seven years under the baseline
scenario (2020: average of seven years), excluding those classified as held for sale.
For the calculation of individually assessed provisions, the timing of recovery of collaterals as well as the
haircuts used are based on the specific facts and circumstances of each case.
For the calculation of expected credit losses three scenarios were used; base, adverse and favourable with
50%, 30% and 20% probability respectively.
For Stage 3 customers, the base scenario focuses on the following variables, which are based on the specific
facts and circumstances of each customer: the operational cash flows, the timing of recovery of collaterals
and the haircuts from the realisation of collateral. The base scenario is used to derive additional favourable
and adverse scenarios. Under the adverse scenario operational cash flows are decreased by 50%, applied
haircuts on real estate collateral are increased by 50% and the timing of recovery of collaterals is increased
by 1 year with reference to the baseline scenario. Under the favourable scenario, applied haircuts are
decreased by 5%, with no change in the recovery period with reference to the baseline scenario.
Assumptions used in estimating expected future cash flows (including cash flows that may result from the
realisation of collateral) reflect current and expected future economic conditions and are generally
consistent with those used in the Stage 3 collectively assessed exposures. In the case of loans held for sale
the Group takes into consideration the timing of expected sale and the estimated sale proceeds in
determining the ECL.
The above assumptions are also influenced by the ongoing regulatory dialogue BOC PCL maintains with its
lead regulator, the ECB, and other regulatory guidance and interpretations issued by various regulatory and
industry bodies such as the ECB and the EBA, which provide guidance and expectations as to relevant
definitions and the treatment/classification of certain parameters/assumptions used in the estimation of
provisions.
Any changes in these assumptions or difference between assumptions made and actual results could result
in significant changes in the estimated amount of expected credit losses of loans and advances to
customers.
Sensitivity analysis
The Group has performed sensitivity analysis relating to the loan portfolio in Cyprus, which represents more
than 99% of the total loan portfolio of the Group (excluding the loans and advances to customers classified
as held for sale) with reference date 31 December 2021 and 2020.
201
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.7 Credit losses of loans and advances to customers, including loans and advances to
customers held for sale (continued)
The Group has altered for the purpose of sensitivity analysis the below parameters and the impact on the
ECL, for both individually and collectively assessed ECL calculations, is presented in the table below:
Increase/(decrease) on ECL for
loans and advances to customers
at amortised cost
2021 2020
€000 €000
Increase the adverse weight by 5% and decrease the favourable weight by 5% 3,610 3,599
Decrease the adverse weight by 5% and increase the favourable weight by 5% (3,626) (3,658)
Increase the expected recovery period by 1 year 8,000 21,904
Decrease the expected recovery period by 1 year (7,421) (18,746)
Increase the collateral realisation haircut by 5% 19,063 42,769
Decrease the collateral realisation haircut by 5% (16,906) (36,934)
Increase in the PDs of stages 1 and 2 by 20% 8,190 8,718
Decrease in the PDs of stages 1 and 2 by 20% (8,011) (7,824)
The increase/(decrease) on ECL, per stage, for loans and advances to customers at amortised cost is further
presented in the table below:
Stage 1 Stage 2 Stage 3 Total
2021 €000 €000 €000 €000
Increase the adverse weight by 5% and decrease the
favourable weight by 5%
384 413 2,813 3,610
Decrease the adverse weight by 5% and increase the
favourable weight by 5%
(351) (461) (2,814) (3,626)
Increase the expected recovery period by 1 year 434 1,402 6,164 8,000
Decrease the expected recovery period by 1 year (401) (1,323) (5,697) (7,421)
Increase the collateral realisation haircut by 5% 1,215 3,742 14,106 19,063
Decrease the collateral realisation haircut by 5% (1,004) (3,266) (12,636) (16,906)
Increase in the PDs of stages 1 and 2 by 20%* 2,687 5,503 - 8,190
Decrease in the PDs of stages 1 and 2 by 20%* (2,882) (5,129) - (8,011)
Stage 1 Stage 2 Stage 3 Total
2020 €000 €000 €000 €000
Increase the adverse weight by 5% and decrease the
favourable weight by 5%
176 322 3,101 3,599
Decrease the adverse weight by 5% and increase the
favourable weight by 5%
(133) (422) (3,103) (3,658)
Increase the expected recovery period by 1 year 412 1,100 20,392 21,904
Decrease the expected recovery period by 1 year (352) (893) (17,501) (18,746)
Increase the collateral realisation haircut by 5% 1,176 2,810 38,783 42,769
Decrease the collateral realisation haircut by 5% (973) (2,431) (33,530) (36,934)
Increase in the PDs of stages 1 and 2 by 20%* 480 8,238 - 8,718
Decrease in the PDs of stages 1 and 2 by 20%* (783) (7,041) - (7,824)
*The impact on the ECL includes also the transfer between stages of the loans and advances to customers
following the increase/ decrease in the PD.
202
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.7 Credit losses of loans and advances to customers, including loans and advances to
customers held for sale (continued)
The sensitivity analysis performed on the collateral realisation haircut and its impact on the ECL by business
line is presented in the table below:
Increase the
collateral
realisation
haircut by 5%
Decrease the
collateral
realisation
haircut by 5%
Increase the
collateral realisation
haircut by 5%
Decrease the
collateral realisation
haircut by 5%
2021 2021 2020 2020
€000 €000 €000 €000
Corporate 1,365 (1,272) 867 (792)
Global corporate 2,194 (1,976) 1,567 (1,287)
SMEs 724 (627) 764 (653)
Retail
- housing 1,838 (1,545) 3,066 (2,612)
- consumer, credit cards and other 718 (653) 848 (684)
Restructuring
- corporate 551 (558) 1,007 (1,186)
- SMEs 956 (858) 1,255 (978)
- retail housing 1,079 (972) 3,629 (3,146)
- retail other 458 (420) 1,918 (1,707)
Recoveries
- corporate 748 (760) 1,206 (988)
- SMEs 1,114 (940) 1,174 (895)
- retail housing 5,541 (4,889) 10,086 (9,043)
- retail other 1,503 (1,233) 14,929 (12,539)
International banking services 273 (202) 451 (423)
Wealth management
1 (1) 2 (1)
19,063 (16,906) 42,769 (36,934)
45.8 Collateral and other credit enhancements obtained
The carrying value of assets obtained during 2021 and 2020 by taking possession of collateral held as
security, was as follows:
2021 2020
€000 €000
Residential property 10,100 33,059
Commercial and other property
27,021 90,758
37,121 123,817
The total carrying value of the assets obtained over the years by taking possession of collateral held as
security for customer loans and advances and held by the Group as at 31 December 2021 amounted to
€1,274,961 thousand (2020: €1,484,292 thousand).
The disposals of repossessed assets during 2021 amounted to €209,961 thousand (2020: €81,840
thousand).
203
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.9 Currency concentration of loans and advances to customers
The following table presents the currency concentration of the Group's loans and advances at amortised
cost.
2021 2020
Gross loans at amortised cost €000 €000
Euro 9,294,950 9,833,176
US Dollar 372,263 344,446
British Pound 93,369 91,213
Russian Rouble 16,329 14,957
Romanian Lei - 344
Swiss Franc 61,336 108,198
Other currencies
2,288 8,269
9,840,535 10,400,603
Loans and advances to customers classified as held for sale
The following table presents the currency concentration of the Group’s loans and advances at amortised
cost classified as held for sale.
2021 2020
Gross loans at amortised cost
€000 €000
Euro 533,190 1,285,894
US Dollar 700 7,023
British Pound 230 709
Swiss Franc 18,184 42,964
Other currencies
3,485 4,665
555,789 1,341,255
45.10 Forbearance
Forbearance measures occur in situations in which the borrower is considered to be unable to meet the
terms and conditions of the contract due to financial difficulties. Taking into consideration these difficulties,
the Group decides to modify the terms and conditions of the contract to provide the borrower with the
ability to service the debt or refinance the contract, either partially or fully.
The practice of extending forbearance measures constitutes a grant of a concession whether temporarily or
permanently to that borrower. A concession may involve restructuring the contractual terms of a debt or
payment in some form other than cash, such as an arrangement whereby the borrower transfers collateral
pledged to the Group.
The loans forborne continue to be classified as Stage 3 in the case they are performing forborne exposures
under probation for which additional forbearance measures are extended, or performing forborne
exposures, previously classified as NPEs that present more than 30 days past due within the probation
period.
Modifications of loans and advances that do not affect payment arrangements, such as restructuring of
collateral or security arrangements, are not regarded as sufficient to categorise the facility as credit
impaired, as by themselves they do not necessarily indicate credit distress affecting payment ability such
that would require the facility to be classified as NPE.
Rescheduled loans and advances are those facilities for which the Group has modified the repayment
programme (e.g. provision of a grace period, suspension of the obligation to repay one or more
instalments, reduction in the instalment amount and/or elimination of overdue instalments relating to
capital or interest).
204
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.10 Forbearance (continued)
For an account to qualify for rescheduling it must meet certain criteria including that the customer must be
considered to be viable. The extent to which the Group reschedules accounts that are eligible under its
existing policies may vary depending on its view of the prevailing economic conditions and other factors
which may change from year to year. In addition, exceptions to policies and practices may be allowed in
specific situations in response to legal or regulatory agreements or orders.
The forbearance characteristic contributes in two specific ways for the calculation of lifetime ECL for each
individual facility. Specifically, it is taken into consideration in the scorecard development where if this
characteristic is identified as statistically significant it affects negatively the rating of each facility. It also
contributes in the construction through the cycle probability of default and cure curves, where when feasible
a specific curve for the forborne products is calculated and assigned accordingly.
Forbearance activities may include measures that restructure the borrower's business (operational
restructuring) and/or measures that restructure the borrower’s financing (financial restructuring).
Restructuring options may be of a short or long term nature or a combination thereof. The Group has
developed and deployed sustainable restructuring solutions, which are suitable for the borrower and
acceptable for the Group.
Short-term restructuring solutions are defined as restructured repayment solutions of duration of less than
two years. In the case of loans for the construction of commercial property and project finance, a short-
term solution may not exceed one year.
Short-term restructuring solutions can include the following:
Suspension of capital or capital and interest: Granting to the borrower a grace period in the payment
of capital (i.e. during this period only interest is paid) or capital and interest, for a specific period of
time.
Reduced payments: decrease of the amount of repayment instalments over a defined short term
period in order to accommodate the borrower’s new cash flow position.
Arrears and/or interest capitalisation: forbearance by capitalisation of the arrears and of any unpaid
interest to the outstanding principal balance for repayment under a rescheduled program.
Long-term restructuring solutions can include the following:
Interest rate reduction: permanent or temporary reduction of interest rate (fixed or variable) into a
fair and sustainable rate.
Extension of maturity: extension of the maturity of the loan which allows a reduction in instalment
amounts by spreading the repayments over a longer period.
Sale of Assets: Part of the restructuring can be the agreement with the borrower for immediate or
on time sale of assets mainly real estate to reduce borrowing.
Modification of existing terms of previous decisions: In the context of the new sustainable settlement
/ restructuring solution, review any terms of previous decisions that may not be met.
Consolidation / Refinancing of Existing Facilities: In cases where the borrower maintains several
separate loans with different collateral, they can be consolidated and a new repayment schedule can
be set and the new loan can be secured with all existing collateral.
Hard Core Current Account Limit: In such cases a loan with a longer repayment may be offered to
replace / reduce the current account limit.
Split and freeze: the customer’s debt is split into sustainable and unsustainable parts. The
sustainable part is restructured and continues to operate. The unsustainable part is ‘frozen’ for the
restructured duration of the sustainable part. At the maturity of the restructuring, the frozen part is
either forgiven pro rata (based on the actual repayment of the sustainable part) or restructured.
Rescheduling of payments: the existing contractual repayment schedule is adjusted to a new
sustainable repayment program based on a realistic, current and forecasted, assessment of the cash
flow generation of the borrower.
Liquidation Collateral: An agreement between BOC PCL and a borrower for the voluntary sale of
mortgaged assets, for partial or full repayment of the debt.
Currency Conversion: This solution is provided to match the credit facility currency and the
borrower's income currency.
Additional Financing: This solution can be granted, simultaneously with the restructuring of the
existing credit facilities of the borrower, to cover any financing gap.
205
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.10 Forbearance (continued)
Debt/equity swaps: partial set off of the debt and obtaining of an equivalent amount of equity by the
Group, with the remaining debt right sized to the cash flows of the borrower to allow repayment to
the Group from repayment on the re sized debt and from the eventual sale of the equity stake in the
business. This solution is used only in exceptional cases and only where all other efforts for
restructuring are exhausted and after ensuring compliance with the banking law.
Debt/asset swaps: agreement between the Group and the borrower to voluntarily dispose of the
secured asset to partially or fully repay the debt. The asset may be acquired by the Group and any
residual debt may be restructured within an appropriate repayment schedule in line with the
borrower’s reassessed repayment ability.
Stage 2 and Stage 3 loans that were forborne during the year amounted to €707,190 thousand (2020:
€44,823 thousand). Their related modification loss amounted to €23,243 thousand (2020: €10,133
thousand). In 2020, amount of forbearances executed were significantly lower due to the moratorium being
in place (the modification mainly relates to credit-related reasons).
Customers classified as Stage 2 and Stage 3 as at 31 December 2020, that had facilities modified (in a prior
or the current period), and are classified as Stage 1 as at 31 December 2021 amount to €540,712 thousand
(2020:€364,238 thousand) and their corresponding ECL amount to €1,268 thousand (2020:€2,842
thousand).
Previously classified Stage 2 and Stage 3 customers that had facilities modified during the year and are
classified as Stage 1 at 31 December 2021 amount to €110,303 thousand (2020: €347,966 thousand) and
their corresponding ECL amount to €233 thousand (2020: €2,732 thousand). In 2020 the modification for
the majority of these facilities reflects the modification due to moratorium.
Facilities that reverted to Stage 2 and Stage 3 having once cured during the year amount to €126,972
thousand (2020: €109,663 thousand) and their corresponding ECL amounts to €5,250 thousand (2020:
€2,591 thousand) as at 31 December 2021.
45.11 Rescheduled loans and advances to customers
The below table presents the movement of the Group’s rescheduled loans and advances to customers
measured at amortised cost including those classified as held for sale. The rescheduled loans related to
loans and advances classified as held for sale as at 31 December 2021 amounts to €245,452 thousand
(2020: €754,795 thousand).
2021 2020
€000 €000
1 January 1,981,825 2,502,933
New loans and advances rescheduled in the year 741,116 75,539
Loans no longer classified as rescheduled and repayments (484,039) (485,042)
Write off of rescheduled loans and advances (110,471) (130,321)
Interest accrued on rescheduled loans and advances 72,292 53,634
Foreign exchange adjustments 1,907 (4,094)
Derecognition of Helix 2/Velocity 2 portfolios
(733,448) (30,824)
31 December
1,469,182 1,981,825
The classification as forborne loans is discontinued when all EBA criteria for the discontinuation of the
classification as forborne exposure are met. The criteria are set out in the EBA Final draft Implementing
Technical Standards (ITS) on supervisory reporting and non-performing exposures.
The below tables present the Group’s rescheduled loans and advances to customers by staging, economic
activity and business line classification excluding those classified as held for sale, as well as ECL allowances
and tangible collateral held for such rescheduled loans.
206
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.11 Rescheduled loans and advances to customers (continued)
2021 2020
€000 €000
Stage 1 6,883 199,193
Stage 2 828,849 242,493
Stage 3 348,385 686,944
POCI
39,613 98,400
1,223,730 1,227,030
As described in Note 2.19.3, in 2021 the Group introduced the granting of forbearance measures as a
criterion of SICR.
Fair value of collateral
2021 2020
€000 €000
Stage 1 6,751 161,449
Stage 2 782,843 225,402
Stage 3 275,882 550,358
POCI
37,824 88,925
1,103,300 1,026,134
The fair value of collateral presented above has been computed based to the extent that the collateral
mitigates credit risk.
Credit risk concentration
2021 2020
By economic activity
€000 €000
Trade 52,714 87,815
Manufacturing 16,217 31,353
Hotels and catering 259,534 46,145
Construction 164,871 69,188
Real estate 196,522 101,489
Private individuals 414,463 763,723
Professional and other services 96,714 94,385
Other sectors
22,695 32,932
1,223,730 1,227,030
207
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.11 Rescheduled loans and advances to customers (continued)
2021
2020
(restated)
By business line
€000
€000
Corporate 276,684 68,413
Global corporate 357,490 114,822
SMEs 106,362 58,753
Retail
- housing 138,753 222,078
- consumer, credit cards and other 47,006 70,923
Restructuring
- corporate 21,836 76,197
- SMEs 35,890 61,392
- retail housing 66,608 115,436
- retail other 20,561 48,253
Recoveries
- corporate 19,796 18,040
- SMEs 14,382 34,980
- retail housing 81,318 216,418
- retail other 22,478 106,205
International banking services 14,159 14,015
Wealth management
407 1,105
1,223,730 1,227,030
2021 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 6,461 255,488 14,735 - 276,684
Global corporate - 303,823 53,667 - 357,490
SMEs - 96,654 5,736 3,972 106,362
Retail
- housing 381 97,548 38,276 2,548 138,753
- consumer, credit cards and
other
41 29,578 16,181 1,206 47,006
Restructuring
- corporate - 6,941 8,882 6,013 21,836
- SMEs - 8,705 23,410 3,775 35,890
- retail housing - 13,500 49,746 3,362 66,608
- retail other - 5,047 15,088 426 20,561
Recoveries
- corporate - - 17,503 2,293 19,796
- SMEs - - 12,402 1,980 14,382
- retail housing - - 70,951 10,367 81,318
- retail other - - 19,313 3,165 22,478
International banking services - 11,565 2,495 99 14,159
Wealth management
- - - 407 407
6,883 828,849 348,385 39,613 1,223,730
208
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.11 Rescheduled loans and advances to customers (continued)
2020 (restated) Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate 19,359 26,319 20,618 2,117 68,413
Global corporate 69,789 18,908 26,125 - 114,822
SMEs 23,041 22,750 11,504 1,458 58,753
Retail
- housing 55,086 108,175 54,892 3,925 222,078
- consumer, credit cards and
other
17,391 27,694 22,962 2,876 70,923
Restructuring
- corporate 6,162 13,186 41,857 14,992 76,197
- SMEs 4,856 9,483 41,234 5,819 61,392
- retail housing 2,284 9,302 100,443 3,407 115,436
- retail other 475 2,906 43,446 1,426 48,253
Recoveries
- corporate - - 13,308 4,732 18,040
- SMEs - - 27,600 7,380 34,980
- retail housing - - 183,999 32,419 216,418
- retail other - - 89,402 16,803 106,205
International banking services 750 3,770 9,376 119 14,015
Wealth management
- - 178 927 1,105
199,193 242,493 686,944 98,400 1,227,030
Following a reorganisation of the restructuring and recoveries portfolio in early 2021 and mainly of the
terminated exposures, certain loans were reclassified within the 'Restructuring' and 'Recoveries' business
lines. As a result, comparative information has been restated to present information on a consistent basis.
The table below presents the rescheduled loans and advances to customers by staging and business line
concentration for ‘Restructuring’ and ‘Recoveries’ business lines as previously presented in the 2020 Annual
Financial Report.
2020 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Restructuring
- corporate 6,162 13,406 49,380 14,856 83,804
- SMEs 5,993 14,556 31,049 6,776 58,374
- retail housing 1,388 4,350 93,962 2,612 102,312
- retail other 234 2,565 52,588 1,401 56,788
Recoveries
- corporate - - 8,238 7,440 15,678
- SMEs - - 42,885 4,769 47,654
- retail housing - - 176,025 32,891 208,916
- retail other
- - 87,162 16,233 103,395
13,777 34,877 541,289 86,978 676,921
ECL allowance
2021 2020
€000 €000
Stage 1 8 4,317
Stage 2 13,349 9,729
Stage 3 120,345 287,188
POCI
10,218 37,888
143,920 339,122
209
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.12 Credit quality of Group assets exposed to credit risk other than loans and advances to
customers - analysis by rating agency designation
Balances with central banks and loans and advances to banks
Balances with central banks and loans and advances to banks are analysed by Moody’s Investors Service
rating as follows:
2021 2020
€000 €000
Aaa - Aa3 105,759 165,489
A1 - A3 84,629 89,692
Baa1 - Baa3 3,333 45,641
Ba1 - Ba3 9,095,864 5,517,033
B1 - B3 19,160 13,830
Caa - C 6,078 5,309
Unrated 37,474 45,672
Other receivables from banks
27,303 33,747
9,379,600 5,916,413
All balances with central banks and loans and advances to banks are classified as Stage 1 (Note 19).
Debt securities
Investments in debt securities are analysed as follows:
2021 2020
Moody's rating €000 €000
Aaa - Aa3 836,676 727,289
A1 - A3 254,956 98,397
Baa1 - Baa3 78,301 26,047
Ba1 - Ba3 735,663 823,724
Unrated
24,792 33,387
1,930,388 1,708,844
Issued by:
- Cyprus government 735,663 823,725
- Other governments 311,108 173,502
- Banks and other corporations
883,617 711,617
1,930,388 1,708,844
Classified as:
Investments mandatorily measured at FVPL 6,034 19,118
Investments at FVOCI 733,080 656,856
Investments at amortised cost
1,191,274 1,032,870
1,930,388 1,708,844
FVOCI Amortised cost
Stage 1 Stage 1 Stage 2 Total
2021 €000 €000 €000 €000
Aaa - Aa3 235,297 595,845 - 595,845
A1 - A3 57,757 197,199 - 197,199
Baa1 - Baa3 31,318 46,983 - 46,983
Ba1 - Ba3 408,708 278,491 48,463 326,954
Unrated
- 24,293 - 24,293
733,080 1,142,811 48,463 1,191,274
210
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
45. Risk management - Credit risk (continued)
45.12 Credit quality of Group assets exposed to credit risk other than loans and advances to
customers - analysis by rating agency designation (continued)
FVOCI Amortised cost
Stage 1 Stage 1 Stage 2 Total
2020 €000 €000 €000 €000
Aaa - Aa3 244,767 463,904 - 463,904
A1 - A3 28,347 70,050 - 70,050
Baa1 - Baa3 1,000 25,047 - 25,047
Ba1 - Ba3 382,742 392,306 48,676 440,982
Unrated
- 32,887 - 32,887
656,856 984,194 48,676 1,032,870
46. Risk management - Market risk
Market risk is the risk of loss from adverse changes in market prices namely from changes in interest rates,
exchange rates, property and security prices. The Market Risk department is responsible for monitoring the
risk on financial instruments resulting from such changes with the objective to minimise the impact on
earnings and capital. The department also monitors liquidity risk and credit risk with counterparties and
countries. It is also responsible for monitoring compliance with the various market risk policies and
procedures.
Interest rate risk
Interest rate risk refers to the current or prospective risk to Group's capital and earnings arising from
adverse movements in interest rates that affect the Group's banking book positions.
Interest rate risk is measured mainly using the impact on net interest income and impact on economic
value. In addition to the above measures, interest rate risk is also measured using interest rate risk gap
analysis where the assets, liabilities and off-balance sheet items, are classified according to their remaining
repricing period. Items that are not sensitive to rate changes are recognised as non-rate sensitive (NRS)
items. The present value of 1 basis point (PV01) is also calculated.
Interest rate risk is managed through a 1 Year Interest Rate Effect (IRE) limit on the maximum reduction of
net interest income under the various interest rate shock scenarios. Limits are set as a percentage of the
Group capital and as a percentage of the net interest income. There are different limits for the Euro and the
US Dollar.
Sensitivity analysis
The table below sets out the impact on the Group’s net interest income, over a one year period, from
reasonably possible changes in the interest rates of the main currencies using the assumption of the
prevailing market risk policy for the current and the comparative year:
211
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Notes to the Consolidated Financial Statements
46. Risk management - Market risk (continued)
Impact on Net Interest
Income in €000
Currency Interest Rate Scenario
2021
(50 bps for
Euro and 60
bps for US
Dollar)
2020
(50 bps for
Euro and 60
bps for US
Dollar)
All Parallel up 35,677 27,592
All Parallel down (28,235) (23,627)
All Steepening (19,944) (15,184)
All Flattening 25,546 22,494
All Short up 33,182 26,310
All Short down (28,169) (22,790)
Euro Parallel up 34,484 26,093
Euro Parallel down (26,230) (21,042)
Euro Steepening (17,866) (12,898)
Euro Flattening 25,153 21,424
Euro Short up 32,200 24,886
Euro Short down (25,208) (20,267)
US Dollar Parallel up 1,193 1,499
US Dollar Parallel down (2,005) (2,585)
US Dollar Steepening (2,078) (2,286)
US Dollar Flattening 393 1,070
US Dollar Short up 982 1,424
US Dollar Short down (2,961) (2,523)
212
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Notes to the Consolidated Financial Statements
46. Risk management - Market risk (continued)
The table below sets out the impact on the Group’s equity, from reasonably possible changes in the interest
rates under various interest rate scenarios for the Euro and the US Dollar in line with the EBA guidelines.
Impact on Equity in €000
Currency Interest Rate Scenario
2021
(50 bps for
Euro and 60
bps for US
Dollar)
2020
(50 bps for
Euro and 60
bps for US
Dollar)
All Parallel up (14,964) 174
All Parallel down 23,698 42,736
All Steepening (9,300) 50,082
All Flattening 8,986 51,093
All Short up 3,616 6,044
All Short down 6,273 47,392
Euro Parallel up (18,080) (1,760)
Euro Parallel down 60,603 90,207
Euro Steepening (7,836) 101,292
Euro Flattening 17,714 101,893
Euro Short up 2,234 8,897
Euro Short down 26,386 99,812
US Dollar Parallel up 6,232 3,867
US Dollar Parallel down (6,604) (2,367)
US Dollar Steepening (1,464) (564)
US Dollar Flattening 258 293
US Dollar Short up 4,998 3,191
US Dollar Short down (6,920) (2,514)
The aggregation of the impact on equity was performed as per the EBA guidelines by adding the negative
and 50% of the positive impact of each scenario.
In addition to the above fluctuations in net interest income, interest rate changes can result in fluctuations
in the fair value of investments at FVPL (including investments held for trading) and in the fair value of
derivative financial instruments.
The equity of the Group is also affected by changes in market interest rates. The impact on the Group’s
equity arises from changes in the fair value of fixed rate debt securities classified at FVOCI.
The sensitivity analysis is based on the assumption of a parallel shift of the yield curve. The table below
sets out the impact on the Group’s profit/loss before tax and equity as a result of reasonably possible
changes in the interest rates of the major currencies.
Parallel change in interest rates
((increase)/decrease in net
interest income)
Impact on profit/loss
before tax
Impact on equity
2021 €000 €000
+0.6% for US Dollar
+0.5% for Euro
+1.0% for British Pound
1,219 (739)
-0.6% for US Dollar
-0.5% for Euro
-1.0% for British Pound
(782) 739
213
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
46. Risk management - Market risk (continued)
Impact on profit/loss
before tax
Impact on equity
Parallel change in interest rates
((increase)/decrease in net
interest income)
€000 €000
2020
+0.6% for US Dollar
+0.5% for Euro
+1.0% for British Pound
686 (541)
-0.6% for US Dollar
-0.5% for Euro
-1.0% for British Pound
1,496 541
Interest rate benchmark reform
The LIBOR and the EURIBOR (collectively referred to as IBORs) are the subject of international, national and
other regulatory guidance and proposals for reform. Some of these reforms are already effective while
others are still to be implemented. These reforms may cause such benchmarks to perform differently from
the past or cease to exist entirely or have other consequences that cannot be predicted.
Regarding LIBOR reform, regulators and industry working groups have identified alternative rates to
transition to. On 5 March 2021 the Financial Conduct Authority (FCA) has confirmed that all LIBOR settings
will either cease to be provided by any administrator or no longer be representative of the underlying
market they intended to measure:
immediately after 31 December 2021, in the case of all sterling, euro, Swiss franc and Japanese yen
settings, and the 1 week and 2 month US dollar settings; and
immediately after 30 June 2023, in the case of the remaining US dollar settings.
In October 2021, the European Commission designated a statutory replacement rate for certain settings of
CHF LIBOR.
On 16 November 2021, the Financial Conduct Authority of the United Kingdom (UK FCA) confirmed that
they would permit the temporary use of the synthetic GBP and JPY LIBOR in all legacy LIBOR contracts,
other than cleared derivatives that have not been changed at or ahead of end-31 December 2021. Also,
under their new use restriction power they would prohibit new use of USD LIBOR from the end of 2021,
except in specific circumstances.
BOC PCL established a project to manage the transition to alternative interest rate benchmarks with the
Director of Treasury as the project owner and with oversight from a dedicated Benchmark Steering
Committee. The main divisions involved in the project at the highest level are the Legal Department,
Treasury, Risk Management, Finance, Information Technology (IT), Operations and the business lines. The
Assets and Liabilities Committee (ALCO) monitors the project on a regular basis.
During 2021, the Group has been actively preparing for the transition to alternative rates, including the
assessment of appropriate fallback provisions for LIBOR linked contracts and transition mechanisms in its
floating rate assets and liabilities with maturities after 2021, when most IBORs are expected to cease to be
published or no longer be representative of the underlying market they intended to measure. The most
significantly impacted areas and the risks arising from IBORs’ transition to alternative interest rate
benchmarks are: updating systems and processes affected from the transition, reviewing and amending
legal IBORs’ referencing contracts, negotiation of revised legal documents with customers, development of
new products, impact on risk management processes and systems, market risk profile changes due to IBOR
transition, and financial and accounting matters including among other, hedge accounting issues. During
2021, the Group continued to work on technology and business process changes to ensure operational
readiness in preparation for LIBOR cessation and transition to alternative Reference Rates (RFRs) in line
with official sector expectations and milestones. The Group will continue to assess, monitor and dynamically
manage risks, and implement specific mitigating controls when required, progressing towards an orderly
transition to alternative benchmarks.
For the legacy non-cleared derivatives exposures, the Group has adhered to the International Swaps and
Derivatives Association (ISDA) protocol which came into effect in January 2021, while for cleared
derivatives, BOC PCL will adopt the market wide standardised approach to be followed by the relevant
clearing house.
214
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
46. Risk management - Market risk (continued)
The Group proactively engaged with its customer base and market counterparties for the amendment of
substantially all impacted LIBOR contracts (other than contracts referencing USD LIBOR) by 31 December
2021 for transitioning to alternative rates. Those legacy credit facilities in CHF for which the contract was
not amended by the first interest period commencing in 2022 ('tough legacy'), have been transitioned to
the statutory rate provided by EU legislation. The Group has also made the necessary arrangements to
transition its tough legacy GBP and JPY credit facilities to alternative rates by notifying its customer base
accordingly and reserving the right to use a statutory rate provided by EU legislation in case such a rate is
nominated in the future. New RFR lending products have also been introduced and adopted across the
Group’s key currencies. The Group continues to engage with counterparties to transition residual exposures,
in line with regulatory guidance. This effort will continue until the transition of USD LIBOR contracts
concludes by the end of June 2023.
The following table summarises the significant non derivative exposures impacted by interest rate
benchmark reform as at 31 December 2021 and 31 December 2020:
2021 EURIBOR
GBP
LIBOR
USD
LIBOR
CHF
LIBOR
Other
LIBOR Total
Non-derivative financial
assets €000 €000 €000 €000 €000 €000
Loans and advances to
customers
4,863,052 92,819 364,113 26,727 1,627 5,348,338
Investments
24,371 - - - - 24,371
Loans and advances to banks
87,569 18,341 87,397 4,984 10,261 208,552
Total
4,974,992 111,160 451,510 31,711 11,888 5,581,261
Non-derivative financial
liabilities
Deposits by banks
151,051 113 7,658 - 503 159,325
Total
151,051 113 7,658 - 503 159,325
2020 EURIBOR
GBP
LIBOR
USD
LIBOR
CHF
LIBOR
Other
LIBOR Total
Non-derivative financial
assets
€000 €000 €000 €000 €000 €000
Loans and advances to
customers
4,463,730 89,523 331,684 36,967 4,102 4,926,006
Investments 32,993 - - - - 32,993
Loans and advances to banks
69,405 1,858 69,326 4,968 9,420 154,977
Total
4,566,128 91,381 401,010 41,935 13,522 5,113,976
Non-derivative financial
liabilities
Deposits by banks
154,435 1,110 1,074 - 4,668 161,287
Total
154,435 1,110 1,074 - 4,668 161,287
EURIBOR is in compliance with the EU Benchmarks Regulation and can continue to be used as a benchmark
interest rate for existing and new contracts. The Group therefore, does not consider that Group’s exposure
to EURIBOR is affected by the BMR reform as at 31 December 2021 and 2020.
For derivatives in hedging relationships subject to IBOR reform refer to Note 21.
Currency risk
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate
because of changes in foreign exchange rates.
In order to manage currency risk, the ALCO has approved open position limits for the total foreign exchange
positions. The foreign exchange position limits are lower than those prescribed by the CBC. These limits are
managed by Treasury and monitored daily by Market Risk.
The Group does not maintain a currency trading book.
215
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Notes to the Consolidated Financial Statements
46. Risk management - Market risk (continued)
The table below sets out the Group's currency risk resulting from the financial instruments that it holds. The
analysis assumes reasonably possible changes in the exchange rates of major currencies against the Euro,
based mainly on historical price fluctuations. The impact on profit/loss after tax includes the change in net
interest income that arises from the change of currency rate.
The impact on equity arises from the hedging instruments that are used to hedge part of the net assets of
the subsidiaries whose functional currency is not the Euro. The net assets of foreign operations are also
revalued and affect equity, but their impact is not taken into account in the above sensitivity analysis as the
above relates only to financial instruments which have a direct impact either on profit/loss after tax or on
equity.
Change in foreign
exchange rate
Impact on profit/loss
after tax
Impact on equity
2021 % €000 €000
US Dollar +10 1,253 -
Russian Rouble +25 2,571 34,656
Romanian Lei +10 - 340
Swiss Franc +5 420 -
British Pound +10 (70) -
Japanese Yen +10 67 -
Other currencies +10 138 -
US Dollar -10 (1,025) -
Russian Rouble -25 (1,543) (20,793)
Romanian Lei -10 - (278)
Swiss Franc -5 (380) -
British Pound -10 57 -
Japanese Yen -10 (55) -
Other currencies -10 (113) -
Change in foreign
exchange rate
Impact on profit/loss
after tax
Impact on equity
2020 % €000 €000
US Dollar +15 4,032 -
Russian Rouble +25 2,594 27,556
Romanian Lei +10 - 133
Swiss Franc +10 1,923 -
British Pound +10 389 (1,110)
Japanese Yen +10 118 -
Other currencies +10 13 -
US Dollar -15 (2,980) -
Russian Rouble -25 (1,556) (16,534)
Romanian Lei -10 - (109)
Swiss Franc -10 (1,422) -
British Pound -10 (318) 909
Japanese Yen -10 (96) -
Other currencies -10 (11) -
The impact on equity arises mainly from the impact of hedging instruments used to hedge part of the net
assets of the subsidiaries. At Group level, there is an approximately equal and opposite impact on equity
from the revaluation of the net assets of the foreign operations of the Group.
216
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
46. Risk management - Market risk (continued)
Price risk
Equity securities price risk
The risk of loss from changes in the price of equity securities arises when there is an unfavourable change in
the prices of equity securities held by the Group as investments.
Investments in equities are outside the Group’s risk appetite but may be acquired in the context of
delinquent loan workouts. The Group monitors the current portfolio mostly acquired by the Group as part of
the acquisition of certain operations of Laiki Bank, or through delinquent loan workouts, with the objective
to gradually liquidate all positions for which there is a market. Equity securities are disposed of by the
Group as soon as practicable.
Changes in the prices of equity securities that are classified as investments at FVPL, affect the results of the
Group, whereas changes in the value of equity securities classified as FVOCI affect directly the equity of the
Group.
The table below shows the impact on the profit/loss before tax and on equity of the Group from a change in
the price of the equity securities held, as a result of reasonably possible changes in the relevant stock
exchange indices.
Change in index
Impact on profit/loss
before tax
Impact on equity
2021 % €000 €000
Cyprus Stock Exchange +20 - 645
Athens Exchange +30 257 -
New York Exchange +20 1,626 -
Other stock exchanges and
unlisted
+65 46 3,721
Non-listed (Real Estate) +25 - 1,666
Cyprus Stock Exchange -25 (1) (806)
Athens Exchange -35 (300) -
New York Exchange -25 (2,033) -
Other stock exchanges and
unlisted
-80 (57) (4,579)
Non-listed (Real Estate) -10 - (666)
Change in index
Impact on profit/loss
before tax
Impact on equity
2020 % €000 €000
Cyprus Stock Exchange +20 447 294
Athens Exchange +30 188 -
Other stock exchanges and
unlisted
+20 140 2,670
Cyprus Stock Exchange -20 (447) (294)
Athens Exchange -30 (188) -
Other stock exchanges and
unlisted
-20 (140) (2,670)
Debt securities price risk
Debt securities price risk is the risk of loss as a result of adverse changes in the prices of debt securities
held by the Group. Debt security prices change as the credit risk of the issuer changes and/or as the
interest rate changes for fixed rate securities. The Group invests a significant part of its liquid assets in
highly rated securities. The average Moody’s Investors Service rating of the debt securities portfolio of the
Group as at 31 December 2021 was A3 (2020: Baa1). The average rating excluding the Cyprus Government
bonds and non-rated transactions as at 31 December 2021 was Aa2 (2020: Aa1). Further information on
ratings of debt securities is disclosed in Note 45.12.
217
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
46. Risk management - Market risk (continued)
Changes in the prices of debt securities classified as investments at FVPL, affect the profit or loss of the
Group, whereas changes in the value of debt securities classified as FVOCI affect directly the equity of the
Group.
The table below indicates how the profit/loss before tax and equity of the Group will be affected from
reasonably possible changes in the price of the debt securities held, based on Monte Carlo conditional value-
at-risk (cVaR) analysis which is a risk measure used to evaluate market risks and it is derived by averaging
the worst case loss scenarios, with a confidence level of 99%, performed on a bond level, for the year
ended 31 December 2021, and based on observations of changes in credit risk over the past years for the
year ended 31 December 2020.
Impact on profit/loss
before tax
Impact on equity
2021 €000 €000
Up scenario:
Aa3 and above rated bonds 2,383 4,093
A3 and above rated bonds 2,722 2,627
Baa3 and above rated bonds 31 4,183
Cyprus Government bonds - 22,758
Down scenario:
Aa3 and above rated bonds (2,383) (4,093)
A3 and above rated bonds (2,722) (2,627)
Baa3 and above rated bonds (31) (4,183)
Cyprus Government bonds - (22,758)
Impact on profit/loss
before tax
Impact on equity
2020 €000 €000
+3.0% for Aa3 and above rated bonds 2,627 7,287
+3.5% for A3 and above rated bonds 905 981
+4.0% for Baa3 and above rated bonds
51 39
+4.3% for Cyprus Government bonds
- 16,322
-3.0% for Aa3 and above rated bonds
(2,627) (7,287)
-3.5% for A3 and above rated bonds (905) (981)
-4.0% for Baa3 and above rated bonds
(51) (39)
-4.3% for Cyprus Government bonds - (16,322)
Other non-equity instruments price risk
The table below shows the impact on the profit/loss before tax and on equity of the Group from a change in
the price of other non-equity investments held, as a result of reasonably possible changes in the relevant
stock exchange indices.
Change in index
Impact on profit/loss
before tax
Impact on equity
2021 % €000 €000
Other (non-equity instruments) +20 1,107 -
Other (non-equity instruments) -25 (1,384) -
2020
Other (non-equity instruments) +25 4,596 -
Other (non-equity instruments) -25 (4,596) -
Property price risk
A significant part of the Group’s loan portfolio is secured by real estate the majority of which is located in
Cyprus. Furthermore, the Group holds a substantial number of properties mainly arising from loan
restructuring activities; the enforcement of loan collateral and debt for asset swaps. These properties are
held by the Group primarily as stock of properties and some are held as investment properties.
218
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Notes to the Consolidated Financial Statements
46. Risk management - Market risk (continued)
Property risk is the risk that the Group’s business and financial position will be affected by adverse changes
in the demand for, and prices of, real estate, or by regulatory capital requirements relating to increased
charges with respect to the stock of properties held.
47. Risk management - Liquidity and funding risk
Liquidity Risk
Liquidity risk is the risk that the Group is unable to fully or promptly meet current and future payment
obligations as and when they fall due. This risk includes the possibility that the Group may have to raise
funding at high cost or sell assets at a discount to fully and promptly satisfy its obligations.
It reflects the potential mismatch between incoming and outgoing payments, taking into account
unexpected delays in repayment and unexpectedly high payment outflows. Liquidity risk involves both the
risk of unexpected increases in the cost of funding of the portfolio of assets and the risk of being unable to
liquidate a position in a timely manner on reasonable terms.
In order to limit this risk, management has adopted a policy of managing assets with liquidity in mind and
monitoring cash flows and liquidity on a daily basis. The Group has developed internal control processes and
contingency plans for managing liquidity risk.
Management and structure
The Board of Directors sets the Group's Liquidity Risk Appetite which defines the level of risk at which the
Group should operate.
The Board of Directors, through its Risk Committee, approves the Liquidity Policy Statement and reviews at
frequent intervals the liquidity position of the Group.
The ALCO is responsible for setting the policies for the effective management and monitoring of liquidity risk
across the Group.
The Treasury Division is responsible for liquidity management at Group level to ensure compliance with
internal policies and regulatory liquidity requirements and provide direction as to the actions to be taken
regarding liquidity needs. Treasury assesses on a continuous basis, the adequacy of the liquid assets and
takes the necessary actions to ensure a comfortable liquidity position.
Liquidity is also monitored daily by Market Risk, to ensure compliance with both internal policies and limits,
and with the limits set by the regulatory authorities. Market Risk reports the liquidity position to ALCO at
least monthly. It also provides the results of various stress tests to ALCO at least quarterly.
Liquidity is monitored and managed on an ongoing basis through:
(i) Risk appetite: established Group Risk Appetite together with the appropriate limits for the
management of all risks including liquidity risk.
(ii) Liquidity policy: sets the responsibilities for managing liquidity risk as well as the framework, limits
and stress test assumptions.
(iii) Liquidity limits: a number of internal and regulatory limits are monitored on a daily, monthly and
quarterly basis. Where applicable, a traffic light system (RAG) has been introduced for the ratios, in
order to raise flags and take action when the ratios deteriorate.
(iv) Early warning indicators: monitoring of a range of indicators for early signs of liquidity risk in the
market or specific to the Group. These are designed to immediately identify the emergence of
increased liquidity risk so as to maximise the time available to execute appropriate mitigating
actions.
(v) Liquidity Contingency Plan: maintenance of a Liquidity Contingency Plan (LCP) which is designed to
provide a framework where a liquidity stress could be effectively identified and managed. The LCP
provides a communication plan and includes management actions to respond to liquidity stresses.
(vi) Recovery Plan: the Group has developed a Recovery Plan (RP), the key objectives of which are,
among others, to set key Recovery and Early Warning Indicators and to set in advance a range of
recovery options to enable the Group to be adequately prepared to respond to stressed conditions
and restore the Group’s liquidity position.
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
47. Risk management - Liquidity and funding risk (continued)
Monitoring process
Daily
The daily monitoring of customer flows and the stock of highly liquid assets is important to safeguard and
ensure the uninterrupted operations of the Group’s activities. Market risk prepares a daily report analysing
the internal liquidity buffer and comparing it to the previous day’s buffer. The historical summary results of
this report are made available to ALCO and to members of the Risk Division, Treasury and Financial Control
department. In addition, Treasury monitors daily and intraday the customer inflows and outflows in the
main currencies used by the Group.
Market Risk also prepares daily stress testing for bank specific, market wide and combined scenarios. The
requirement is to have sufficient liquidity buffer to enable BOC PCL to survive a twelve-month stress period,
including capacity to raise funding under all scenarios.
Moreover, an intraday liquidity stress test takes place to ensure that the Group maintains sufficient liquidity
buffer in immediately accessible form, to enable it to meet the stressed intraday payments.
The liquidity buffer is made up of: Banknotes, CBC balances (excluding the Minimum Reserve Requirements
(MRR)), unpledged cash and nostro current accounts, as well as money market placements up to the stress
horizon, available ECB credit line and market value net of haircut of unencumbered/available liquid bonds.
The designing of the stress tests followed guidance and was based on the liquidity risk drivers which are
recognised internationally by both the Prudential Regulation Authority (PRA) and EBA. In addition, it takes
into account SREP recommendations as well as the Annual Risk Identification Process of the Group. The
stress test assumptions are included in the Group Liquidity Policy which is reviewed on an annual basis and
approved by the Board. However, whenever it is considered appropriate to amend the assumptions during
the year, approval is requested from ALCO and the Board Risk Committee. The main items shocked in the
different scenarios are: deposit outflows, wholesale funding, loan repayments, off balance sheet
commitments, marketable securities, own issue covered bond, additional credit claims, interbank takings
and cash collateral for derivatives and repos.
Weekly
Market Risk prepares a report indicating the level of Liquid Assets including Credit Institutions Money Market
Placements as per LCR definitions.
Monthly
Market Risk prepares reports monitoring compliance with internal and regulatory liquidity ratios
requirements and submits them to the ALCO, the Executive Committee and the Board Risk Committee. It
also calculates the expected flows under a stress scenario and compares them with the projected available
liquidity buffer in order to calculate the survival days. The fixed deposit renewal rates, the percentage of
International Banking Services deposits over total deposits and the percentage of instant access deposits
are also presented. The liquidity mismatch in the form of the Maturity Ladder report (for both contractual
and behavioural flows) is presented to ALCO and the resulting mismatch between assets and liabilities is
compared to previous month’s mismatch.
Market Risk also prepares a monthly liquidity report which is submitted to the ECB. The report includes
information on deposits breakdown, cash flow information, survival period, LCR ratio, rollover of funding,
funding gap (through the Maturity ladder analysis), concentration of funding and collateral details. It
concludes on the overall liquidity position of BOC PCL and describes the measures implemented and to be
implemented in the short term to improve liquidity position if needed.
Market Risk reports the LCR and Additional Liquidity Monitoring Metrics (ALMM) to the CBC/ECB monthly.
Quarterly
The results of the stress testing scenarios prepared daily are reported to ALCO and Board Risk Committee
quarterly as part of the quarterly Internal Liquidity Adequacy Assessment Process (ILAAP) review. Market
Risk reports the Net Stable Funding Ratio (NSFR) to the CBC/ECB quarterly.
220
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Notes to the Consolidated Financial Statements
47. Risk management - Liquidity and funding risk (continued)
Annually
The Group prepares on an annual basis its report on ILAAP. The ILAAP report provides a holistic view of the
Group’s liquidity adequacy under normal and stress conditions. Within ILAAP, the Group evaluates its
liquidity risk in the context of established policies, processes for the identification, measurement,
management and monitoring of liquidity risk implemented by the institution.
As part of the Group’s procedures for monitoring and managing liquidity risk, there is a Group Liquidity
Contingency Plan (LCP) for handling liquidity difficulties. The LCP details the steps to be taken in the event
that liquidity problems arise, which escalate to a special meeting of the extended ALCO. The LCP sets out
the members of this committee and a series of the possible actions that can be taken. The LCP is tested
annually. The LCP, which forms part of the Group’s Liquidity Policy, is reviewed by ALCO at least annually,
during the ILAAP review. The ALCO submits the updated Liquidity Policy with its recommendations to the
Board through the Board Risk Committee for approval. The approved Liquidity Policy is notified to the SSM.
Liquidity ratios
The Group LCR is calculated based on the Delegated Regulation (EU) 2015/61. It is designed to establish a
minimum level of high-quality liquid assets sufficient to meet an acute stress lasting for 30 calendar days.
Τhe minimum requirement is 100%. The Group also calculates its NSFR as per Capital Requirements
Regulation II (CRR II), enforced in June 2021, with the limit set at 100%. The NSFR is the ratio of available
stable funding to required stable funding. NSFR has been developed to promote a sustainable maturity
structure of assets and liabilities.
Funding risk
Funding risk is the risk that the Group does not have sufficiently stable sources of funding or access to
sources of funding may not always be available at a reasonable cost and thus the Group may fail to meet its
obligations, including regulatory ones (e.g MREL).
Main sources of funding
As at 31 December 2021 the Group’s main sources of funding were its deposit base and central bank
funding, through the Eurosystem monetary policy operations. Wholesale funding is also becoming an
important source of funding, following the refinancing of the Tier 2 for €300 million in April 2021 and the
issuance of senior preferred debt of €300 million in June 2021.
With respect to TLTRO III operations, BOC PCL borrowed in March 2021 an amount of €1,700 million and in
June 2021 another €300 million, having previously borrowed in June 2020 €1,000 million under the TLTRO
III, given the favourable borrowing rate, in combination with the relaxation of collateral terms (lower
haircuts and widening of eligibility of credit claims), all being part of the ECB’s COVID-19 aid package. As a
result, at 31 December 2021 the carrying value of the ECB funding was €2,970 million (2020: €995 million).
As at 31 December 2021, the wholesale funding nominal amount was €856 million. This includes funding
raised from the wholesale debt capital markets of €220 million AT1 issued in December 2018, €300 million
new Tier 2 issued in April 2021, €36 million remaining outstanding from the Tier 2 issued in January 2017
and €300 million senior preferred debt issued in June 2021. In January 2022, BOC PCL redeemed the
remaining €36 million outstanding of the Tier 2 issued in January 2017.
Funding to subsidiaries
The funding provided by BOC PCL to its subsidiaries for liquidity purposes is repayable as per the terms of
the respective agreements.
Any new funding to subsidiaries requires approval from the ECB and the CBC.
The subsidiaries may proceed with dividend distributions in the form of cash to BOC PCL, provided that they
are not in breach of their regulatory capital and liquidity requirements, where applicable. Certain
subsidiaries have a recommendation from their regulator to exercise caution and prudence regarding
dividend distributions and to consider the impact of COVID-19 on their operating models, solvency, liquidity
and financial position.
221
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
47. Risk management - Liquidity and funding risk (continued)
Collateral requirements and other disclosures
Collateral requirements
The carrying values of the Group's encumbered assets as at 31 December 2021 and 2020 are summarised
below:
2021 2020
€000 €000
Cash and other liquid assets 102,463 78,831
Investments 1,260,158 37,105
Loans and advances
3,126,803 2,842,941
4,489,424 2,958,877
Cash is mainly used to cover collateral required for derivatives, trade finance transactions and guarantees
issued. It may also be used as part of the supplementary assets for the covered bond. The increase in cash
and other liquid assets presented as encumbered assets during the year ended 31 December 2021 was
driven mainly by the cash encumbered for derivatives and for trade finance transactions.
As at 31 December 2021, investments are mainly used as collateral for ECB funding or as supplementary
assets for the covered bond. The increase in the investments presented as encumbered assets during the
year ended 31 December 2021 was driven by the pledging of additional debt securities to the ECB for
obtaining funding through the TLTRO III in March 2021 and June 2021.
Loans and advances indicated as encumbered as at 31 December 2021 and 2020, are mainly used as
collateral for funding from the ECB and the covered bond.
Loans and advances to customers include mortgage loans of a nominal amount of €1,007 million as at 31
December 2021 (2020: €1,017 million) in Cyprus, pledged as collateral for the covered bond issued by BOC
PCL in 2011 under its Covered Bond Programme. Furthermore as at 31 December 2021 housing loans of a
nominal amount of €2,091 million (2020: €1,827 million) in Cyprus, are pledged as collateral for funding
from the ECB (Note 30).
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the
Covered Bonds Directive of the CBC. Under the Covered Bond Programme, BOC PCL has in issue covered
bonds of €650 million secured by residential mortgages originated in Cyprus. On 28 May 2021, the terms of
the covered bonds were amended to extend the maturity date to 12 December 2026 and set the interest
rate to 3 months Euribor plus 1.25% on a quarterly basis. The covered bonds are listed on the Luxemburg
Bourse. The covered bonds have a conditional Pass Through structure. All the bonds are held by BOC PCL.
The covered bonds are eligible collateral for the Eurosystem credit operations and are placed as collateral
for accessing funding from the ECB.
Other disclosures
Deposits by banks include balances of €36,571 thousand as at 31 December 2021 (2020: €44,220
thousand) relating to borrowings from international financial and similar institutions for funding, aiming to
facilitate access to finance and improve funding conditions for small or medium sized enterprises, active in
Cyprus. The carrying value of the respective loans and advances granted to such enterprises serving this
agreement amounts to €71,321 thousand as at 31 December 2021 (2020: €88,963 thousand).
Analysis of financial assets and liabilities based on remaining contractual maturity
The analysis of the Group’s financial assets and liabilities based on the remaining contractual maturity at 31
December is based on undiscounted cash flows, analysed in time bands according to the number of days
remaining from 31 December to the contractual maturity date.
Financial assets
The analysis of financial assets does not include any interest receivable cash flows. Financial assets have a
much longer duration than financial liabilities and non-discounted interest receivable cash flows are higher
than non-discounted interest payable cash flows (based on remaining contractual maturity). As a result,
non-discounted cash inflows from interest receivable would have greatly exceeded non-discounted cash
outflows on interest payable, thus artificially improving liquidity.
222
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
47. Risk management - Liquidity and funding risk (continued)
Current accounts, overdrafts and amounts in arrears are included within the first maturity time band which
reflects their contractual maturity. All other loans and advances to customers are analysed according to
their contractual repayment schedule.
Loans and advances to banks are analysed in the time bands according to the number of days remaining
from 31 December, until their contractual maturity date. Amounts placed as collateral (primarily for
derivatives and loans) are assigned to different time bands based on either their maturity (in the case of
loans), or proportionally according to the maturities of derivatives (where the collateral had no fixed
maturity).
Financial assets with no contractual maturity (such as equity securities) are included in the 'Over five years'
time band, unless classified as at FVPL, in which case they are included in the 'On demand and up to one
month' time band.
The investments are classified in the relevant time band according to their contractual maturity.
Financial liabilities
All financial liabilities for the repayment of which notice is required, are included in the relevant time bands
as if notice had been given on 31 December, despite the fact that the Group expects that the majority of its
customers will not demand repayment of such liabilities on the earliest possible date. Fixed deposits are
classified in time bands based on their contractual maturity. Although customers may demand repayment
of time deposits (subject to penalties depending on the type of the deposit account), the Group has the
discretion not to accept such early termination of deposits.
Loan stock is classified in the relevant time band according to the remaining contractual maturity or the call
date.
The amounts presented in the table below are not equal to the amounts presented on the balance sheet,
since the table below presents all cash flows (including interest to maturity) on an undiscounted basis.
Derivative financial instruments
The fair value of the derivatives is included in financial assets or in financial liabilities in the time band
corresponding to the remaining maturity of the derivative.
Gross settled derivatives are presented in a separate table and the corresponding cash flows are classified
accordingly in the time bands which relate to the number of days until their receipt or payment.
Commitments and contingent liabilities
Amounts of commitments and contingent liabilities are included in the time band on the basis of their
remaining contractual maturities.
In the case of undrawn facilities the Group has the right to cancel them upon relevant notice to the
customers and hence included in the 'On demand and up to one month' time band.
223
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Annual Financial Report 2021
Notes to the Consolidated Financial Statements
47. Risk management - Liquidity and funding risk (continued)
On demand
and up to one
month
Between one
and three
months
Between three
months and
one year
Between one
and five years
Over five years Total
2021
€000 €000 €000 €000 €000 €000
Financial assets
Cash and balances with
central banks
9,186,073 17,427 23,827 1,997 1,579 9,230,903
Loans and advances to
banks
197,258 4,921 1,882 69,213 18,358 291,632
Investments at FVPL 193,160 - - - 6,034 199,194
Loans and advances to
customers
998,098 216,897 689,990 3,282,030 4,649,390 9,836,405
Fair value of derivative
assets
4,187 322 46 314 1,784 6,653
Non-trading investments 44,715 52,105 247,055 1,126,177 469,917 1,939,969
Financial assets classified as
held for sale
227,195 8 451 1,606 21,110 250,370
Other assets
80,803 1,785 4,443 304,915 1,518 393,464
10,931,489 293,465 967,694 4,786,252 5,169,690 22,148,590
Financial liabilities
Deposits by banks 59,987 16,568 26,426 193,160 170,983 467,124
Funding from central banks - - - 2,931,762 - 2,931,762
Customer deposits 13,135,377 1,836,665 2,545,487 16,523 - 17,534,052
Loan stock 38,898 - 27,375 109,500 706,875 882,648
Fair value of derivative
liabilities
2,249 836 1,746 11,925 15,696 32,452
Lease liabilities 607 1,160 5,213 19,641 8,018 34,639
Other liabilities
179,195 21,190 30,737 6,582 3,342 241,046
13,416,313 1,876,419 2,636,984 3,289,093 904,914 22,123,723
Net financial
(liabilities)/assets
(2,484,824) (1,582,954) (1,669,290) 1,497,159 4,264,776 24,867
224
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
47. Risk management - Liquidity and funding risk (continued)
On demand
and up to one
month
Between one
and three
months
Between three
months and
one year
Between one
and five
years
Over five years Total
2020
€000 €000 €000 €000 €000 €000
Financial assets
Cash and balances with
central banks
5,606,343 18,276 25,430 1,886 1,380 5,653,315
Loans and advances to
banks
322,874 3,229 249 76,358 74 402,784
Investments at FVPL 207,383 - - 60 500 207,943
Loans and advances to
customers
1,349,563 198,647 783,138 3,176,677 4,378,022 9,886,047
Fair value of derivative
assets
4,857 522 178 19,018 52 24,627
Non-trading investments 4,737 28,209 300,124 1,089,668 282,433 1,705,171
Financial assets classified as
held for sale
470,112 773 2,756 9,046 78,775 561,462
Other assets
74,148 15,255 8,110 2,678 2,020 102,211
8,040,017 264,911 1,119,985 4,375,391 4,743,256 18,543,560
Financial liabilities
Deposits by banks 40,311 24,966 19,375 166,712 148,593 399,957
Funding from central banks - - - 979,666 - 979,666
Customer deposits 11,846,823 1,916,872 2,717,157 58,496 - 16,539,348
Loan stock 23,125 - - 92,500 296,250 411,875
Fair value of derivative
liabilities
4,930 998 877 23,138 16,035 45,978
Lease liabilities 815 1,374 6,193 26,364 11,320 46,066
Other liabilities
179,071 20,718 27,571 5,281 2,691 235,332
12,095,075 1,964,928 2,771,173 1,352,157 474,889 18,658,222
Net financial
(liabilities)/assets
(4,055,058) (1,700,017) (1,651,188) 3,023,234 4,268,367 (114,662)
On demand
and up to one
month
Between one
and three
months
Between three
months and
one year
Between one
and five years
Over five years Total
2021
€000 €000 €000 €000 €000 €000
Gross settled derivatives
Financial assets
Contractual amounts
receivable
420,866 55,956 1,498 - - 478,320
Contractual amounts payable
(416,841) (55,707) (1,475) - - (474,023)
4,025 249 23 - - 4,297
Financial liabilities
Contractual amounts
receivable
576,053 63,521 798 - - 640,372
Contractual amounts payable
(577,555) (63,992) (813) - - (642,360)
(1,502) (471) (15) - - (1,988)
225
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Notes to the Consolidated Financial Statements
47. Risk management - Liquidity and funding risk (continued)
On demand
and up to one
month
Between one
and three
months
Between three
months and
one year
Between one
and five years
Over five years Total
2021
€000 €000 €000 €000 €000 €000
Contingent liabilities and
commitments
Contingent liabilities
Acceptances and
endorsements
1,599 2,306 720 - - 4,625
Guarantees 134,280 94,065 247,402 107,768 26,315 609,830
Commitments
Documentary credits 2,007 4,024 3,127 946 1,160 11,264
Undrawn formal standby
facilities, credit lines and
other commitments to lend
1,950,665 - - - - 1,950,665
2,088,551 100,395 251,249 108,714 27,475 2,576,384
On demand
and up to one
month
Between one
and three
months
Between three
months and
one year
Between one
and five years
Over five years Total
2020
€000 €000 €000 €000 €000 €000
Gross settled derivatives
Financial assets
Contractual amounts
receivable
504,655 36,127 3,193 - - 543,975
Contractual amounts payable
(499,949) (35,502) (3,148) - - (538,599)
4,706 625 45 - - 5,376
Financial liabilities
Contractual amounts
receivable
565,613 175,348 2,858 - - 743,819
Contractual amounts payable
(570,353) (175,907) (2,888) - - (749,148)
(4,740) (559) (30) - - (5,329)
On demand
and up to one
month
Between one
and three
months
Between three
months and
one year
Between one
and five years
Over five years Total
2020
€000 €000 €000 €000 €000 €000
Contingent liabilities and
commitments
Contingent liabilities
Acceptances and
endorsements
2,801 1,542 312 - - 4,655
Guarantees 101,769 105,057 264,089 123,140 25,475 619,530
Commitments
Documentary credits 2,482 5,591 4,957 676 1,160 14,866
Undrawn formal standby
facilities, credit lines and
other commitments to lend
1,986,291 - - - - 1,986,291
2,093,343 112,190 269,358 123,816 26,635 2,625,342
48. Risk management - Insurance risk
Insurance risk is the risk that an insured event under an insurance contract occurs and the uncertainty of
the amount and the timing of the resulting claim. By the very nature of an insurance contract, this risk is
largely random and therefore unpredictable.
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Notes to the Consolidated Financial Statements
48. Risk management - Insurance risk (continued)
For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning,
the principal risk that the Group faces is that the actual claims and benefit payments will exceed the
carrying amount of insurance liabilities. This could occur because the frequency or severity of claims and
benefits are greater than estimated. Insurance events are largely random and the actual volume and cost
of claims and benefits will vary from year to year compared to the estimate established using statistical or
actuarial techniques.
The above risk exposure is mitigated by the Group through the diversification across a large portfolio of
insurance contracts. The variability of risks is also reduced by careful selection and implementation of
underwriting strategy guidelines, as well as the use of reinsurance arrangements. Although the Group has
reinsurance coverage, it is not relieved of its direct obligations to policyholders and is thus exposed to credit
risk with respect to ceded insurance, to the extent that any reinsurer is unable to meet the obligations
assumed under such reinsurance arrangements. For that reason, the creditworthiness of reinsurers is
evaluated by considering their solvency and credit rating.
Life insurance contracts
The main factors that could affect the overall frequency of claims are epidemics, major lifestyle changes,
pandemics and natural disasters.
The underwriting strategy and risk assessment is designed to ensure that risks are well diversified in terms
of type of risk and level of insured benefits. This is largely achieved through the use of medical screening in
order to ensure that pricing takes account of the current medical conditions and family medical history and
through the regular review of actual claims and product pricing. The Group has the right to decline policy
applications, it can impose additional charges and it has the right to reject the payment of fraudulent
claims.
The most significant risks relating to accident and health insurance contracts result from lifestyle changes
and from climate and environmental changes. The risks are mitigated by the careful use of strategic
selection and risk-taking at the underwriting stage and by thorough investigation for possible fraudulent
claims.
The Group uses an analysis based on its embedded value which provides a comprehensive framework for
the evaluation and management of risks faced, the understanding of earnings volatility and operational
planning. The table below shows the sensitivity of the embedded value to assumption changes that
substantially affect the results:
2021 2020
Changes in embedded value €000 €000
Change in unit growth +0.25% 123 97
Change in expenses +10% (3,925) (2,451)
Change in lapsation rates +10% (1,298) (480)
Change in mortality rates +10% (9,367) (6,457)
The variables above are not linear. In each sensitivity calculation for changes in key economic variables, all
other assumptions remain unchanged except when they are directly affected by the revised economic
conditions.
Changes to key non–economic variables do not incorporate management actions that could be taken to
mitigate effects, nor do they take account of consequential changes in policyholder behaviour. In each
sensitivity calculation all other assumptions are therefore unchanged.
Some of the sensitivity scenarios shown in respect of changes to both economic and non–economic
variables may have a consequential effect on the valuation basis when a product is valued on an active
basis which is updated to reflect current economic conditions.
While the magnitude of these sensitivities will, to a large extent, reflect the size of closing embedded value,
each variable will have a different impact on different components of the embedded value. In addition,
other factors such as the intrinsic cost and time value of options and guarantees, the proportion of
investments between equities and bonds and the type of business written, including for example, the extent
of with–profit business versus non–profit business and to the extent to which the latter is invested in
matching assets, will also have a significant impact on sensitivities.
227
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Notes to the Consolidated Financial Statements
48. Risk management - Insurance risk (continued)
Non-life insurance contracts
Non-life insurance business is concentrated in Cyprus and the main claims during 2021 and 2020 related to
fire and natural forces and other damage to property, motor vehicle liability and general liability.
Risks under these policies are usually covered for a period of 12 months, with the exception of the goods in
transit class that covers shorter periods and the contractors all risks class that covers longer periods.
The liabilities for outstanding claims arising from insurance contracts issued by the Group are based on
experts’ estimates and facts known at the balance sheet date. With time, these estimates are reconsidered
and any adjustments are recognised in the financial statements in the period in which they arise.
The principal assumptions underlying the estimates for each claim are based on experience and market
trends, taking into consideration claims handling costs, inflation and claim numbers for each accident year.
Also, external factors that may affect the estimate of claims, such as recent court rulings and the
introduction of new legislation are taken into consideration.
The insurance contract liabilities are sensitive to changes in the above key assumptions. The sensitivity of
certain assumptions, such as the introduction of new legislation and the rulings of court cases, is very
difficult to be quantified. Furthermore, the delays that arise between the occurrence of a claim and its
subsequent notification and eventual settlement increase the uncertainty over the cost of claims at the
reporting date.
The risk of a non-life insurance contract occurs from the uncertainty of the amount and time of presentation
of the claim. Therefore the level of risk is determined by the frequency of such claims, their severity and
their evolution from one period to the next.
The main risks for the non-life insurance business arise from major catastrophic events like natural
disasters. These risks vary depending on location, type and nature. The variability of risks is mitigated by
the diversification of risk of loss to a large portfolio of insurance contracts, as a more diversified portfolio is
less likely to be affected by changes in any subset of the portfolio. The Group’s exposure to insurance risks
from non-life insurance contracts is also mitigated by the following measures: adherence to strict
underwriting policies, strict review of all claims occurring, immediate review and processing of claims to
minimise the possibility of negative developments in the future, and use of effective reinsurance
arrangements in order to minimise the impact of risks, especially for catastrophic events.
49. Capital management
The primary objective of the Group’s capital management is to ensure compliance with the relevant
regulatory capital requirements and to maintain healthy capital adequacy ratios to cover the risks of its
business and support its strategy and maximise shareholders’ value.
The capital adequacy framework, as in force, was incorporated through the CRR and Capital Requirements
Directive IV (CRD IV) which came into effect on 1 January 2014 with certain specified provisions
implemented gradually. The CRR and CRD IV transposed the new capital, liquidity and leverage standards of
Basel III into the European Union’s legal framework. CRR establishes the prudential requirements for
capital, liquidity and leverage for credit institutions. It is directly applicable in all EU member states. CRD IV
governs access to deposit-taking activities and internal governance arrangements including remuneration,
board composition and transparency. Unlike the CRR, member states were required to transpose the CRD IV
into national law and national regulators were allowed to impose additional capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V) came into force. As an
amending regulation, the existing provisions of CRR apply unless they are amended by CRR II. Certain
provisions took immediate effect (primarily relating to MREL), but most changes became effective as of June
2021. The key changes introduced consist of among others, changes to qualifying criteria for Common
Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments, introduction of requirements for
MREL and a binding Leverage Ratio requirement (as defined in the CRR) and a Net Stable Funding Ratio
(NSFR).
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Notes to the Consolidated Financial Statements
49. Capital management (continued)
The amendments that came into effect on 28 June 2021 are in addition to those introduced in June 2020
through Regulation (EU) 2020/873, which among other brought forward certain CRR II changes in light of
the COVID-19 pandemic. The main adjustments of Regulation (EU) 2020/873 that had an impact on the
Group’s capital ratio relate to i) the acceleration of the CRR II provision for the implementation of the new
SME discount factor (lower RWAs), ii) extending the IFRS 9 transitional arrangements and introducing
further relief measures to CET1 allowing to fully add back to CET1 any increase in ECL recognised in 2020
and 2021 for non-credit impaired financial assets and phasing in this starting from 2022 and iii) advancing
the application of prudential treatment of software assets as amended by CRR II (which came into force in
December 2020). In addition, Regulation (EU) 2020/873 introduced a temporary treatment of unrealized
gains and losses on exposures to central governments, to regional governments or to local authorities
measured at fair value through other comprehensive income which the Group elected to apply and
implemented from the third quarter of 2020.
The Group and BOC PCL have complied with the minimum capital requirements (Pillar I and Pillar II).
In October 2021, the European Commission adopted legislative proposals for further amendments to Capital
Requirements Regulation (CRR), CRD IV and the BRRD (the '2021 Banking Package'). Amongst other things,
the 2021 Banking Package would implement certain elements of Basel III that have not yet been transposed
into EU law. The 2021 Banking Package is subject to amendment in the course of the EU’s legislative
process; and its scope and terms may change prior to its implementation. In addition, in the case of the
proposed amendments to CRD and the BRRD, their terms and effect will depend, in part, on how they are
transposed in each member state. As a general matter, it is likely to be several years until the 2021
Banking Package begins to be implemented (currently expected in 2025); and certain measures are
expected to be subject to transitional arrangements or to be phased in over time.
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd and EuroLife Ltd, comply with
the requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated
UCITS management company of the Group, BOC Asset Management Ltd complies with the regulatory capital
requirements of the Cyprus Securities and Exchange Commission (CySEC) laws and regulations. The
regulated investment firm (CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd
(CISCO) complies with the minimum capital adequacy ratio requirements.
Additional information on regulatory capital is disclosed in 'Additional Risk and Capital Management
Disclosures' included in the Annual Financial Report and in the 'Pillar III Disclosures Report 2021
(unaudited)', which is published on the Group's website.
229
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
50. Related party transactions
Related parties of the Group include associates and joint ventures, key management personnel, members of
the Board of Directors and their connected persons.
(a) Transactions with subsidiary
The Company is the holding company of the Group. The Company enters into transactions with its
subsidiary in the normal course of business. Balances and transactions between the Company and its
subsidiaries are disclosed in Note 16 of the Company’s financial statements. Transactions with the
subsidiaries have been eliminated on consolidation.
(b) Associates
The Group provides to and receives from its associates certain banking and financial services. These are not
material to the Group and all the transactions are made on normal business terms as for comparable
transactions with customers of a similar standing. Additional information is disclosed in Note 52.
(c) Compensation of the Board of Directors and key management personnel
The following disclosures are made in accordance with the provisions of IAS 24 Related Party Disclosures
and sections 305 and 306 of the Companies Act 2014, in respect of the compensation of the Board of
Directors and key management personnel.
Fees and emoluments of members of the Board of Directors and other key management
personnel
2021 2020
Director emoluments €000 €000
Executives
Salaries and other short-term benefits 801 708
Termination benefits - 450
Employer's contributions 43 49
Retirement benefit plan costs
68 55
912 1,262
Non-executives
Fees
1,250 1,089
Total directors' emoluments
2,162 2,351
Other key management personnel emoluments
Salaries and other short-term benefits 3,234 3,363
Employer's contributions 274 241
Retirement benefit plan costs
181 155
Total other key management personnel emoluments
3,689 3,759
Total
5,851 6,110
Fees and benefits are included for the period that they serve as members of the Board of Directors. Other
key management personnel emoluments are included for the period that they serve as key management
personnel.
The termination benefits of the executive directors relate to compensation paid to an executive director who
left the Group on 31 October 2020. The retirement benefit plan costs relate to contributions paid for defined
contribution plan.
230
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
50. Related party transactions (continued)
Executive Directors
The salaries and other short-term benefits of the Executive Directors are analysed as follows:
2021 2020
€000 €000
Panicos Nicolaou (Chief Executive Officer)
715 506
Christodoulos Patsalides (First Deputy Chief Executive Officer - resigned on
31 October 2020)
- 202
Eliza Livadiotou (Executive Director Finance & Legacy - appointed on 6
October 2021, following ECB approval)
86 -
801 708
The retirement benefit plan costs for 2021 amounting to €68 thousand (2020: €55 thousand) relate to Mr
Panicos Nicolaou €61 thousand (2020: €40 thousand), Mrs Eliza Livadiotou €7 thousand since the date of
her appointment on 6 October 2021 and for 2020 Dr Christodoulos Patsalides up to the date of his
resignation €15 thousand.
Non-executive Directors
2021 2020
€000 €000
Efstratios-Georgios Arapoglou 215 154
Arne Berggren 113 112
Maksim Goldman 113 117
Ioannis Zographakis 198 207
Michael Heger 113 117
Lyn Grobler 154 135
Anat Bar-Gera (resigned on 26 May 2020) - 35
Paula Hadjisotiriou 119 110
Maria Philippou 119 102
Nicolaos Sofianos (appointed on 26 February 2021, following ECB approval) 100 -
Constantine Iordanou (appointed on 29 November 2021, following ECB
approval)
6 -
1,250 1,089
The fees of the non-executive Directors include fees as members of the Board of Directors of the Company
and its subsidiaries, as well as of committees of the Board of Directors.
Other key management personnel
The other key management personnel emoluments include the remuneration of the members of the
Executive Committee since the date of their appointment to the Committee and other members of the
management team who report directly to the Chief Executive Officer or to the Deputy Chief Executive
Officer. Mrs Eliza Livadiotou has been appointed as member of the Board of Directors from 6 October 2021
and her emoluments from that date onwards are disclosed within the Executive Directors emoluments
above.
231
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
50. Related party transactions (continued)
(d) Transactions with Directors and key management personnel
The table below shows the loans and advances, deposits and other credit balances held by the members of
the Board of Directors and key management personnel and their connected persons, as at the balance sheet
date:
2021 2020
Deposits at 31 December €000 €000
- members of the Board of Directors and other key management personnel 2,687 2,017
- connected persons
2,254 2,801
4,941 4,818
Interest expense on deposits for the year
- 3
The above table does not include year-end balances for members of the Board of Directors and other key
management personnel and their connected persons who resigned during the year.
Interest expense is disclosed for the period during which they were members of the Board of Directors or
served as key management personnel.
Loans to Directors
The following information is presented in accordance with the Companies Act 2014. For the purposes of the
Companies Act 2014 disclosures, ‘Directors’ means the current Board of Directors of the Company and any
past directors who were members of the Board of Directors of the Company during the year.
All transactions with members of the Board of Directors and their connected persons are made on normal
business terms as for comparable transactions, including interest rates, with customers of a similar credit
standing. A number of loans and advances have been extended to other key management personnel on the
same terms as those applicable to the rest of the Group’s employees and their connected persons on the
same terms as those of customers.
Connected persons include spouses, minor children and companies in which directors/other key
management personnel, hold directly or indirectly, at least 20% of the voting shares in a general meeting,
or act as executive director or exercise control of the entities in any way.
Additional to members of the Board of Directors, related parties include entities providing key management
personnel services to the Group.
Directors: There were 12 Directors in office during the year (2020: 11 Directors), four of whom availed of
credit facilities (2020: three Directors). Four of the Directors who availed of credit Facilities had balances
outstanding at 31 December 2021 (2020: two Directors). The balances outstanding are disclosed below.
Key management personnel: There were 17 key management personnel in office during the year (excluding
Mrs Eliza Livadiotou who was appointed as member of the Board of Directors on 6 October 2021) (2020: 18
key management personnel), 16 of whom availed of credit facilities (2020: 17 key management personnel).
All of the key management personnel who availed of credit facilities had balances outstanding at 31
December 2021 and 31 December 2020.
Where no amount is shown in the tables below, this indicates a credit balance, a balance of nil, or a balance
of less than €500.
The value of arrangements at the beginning and end of the current and preceding financial years as stated
below in accordance with section 307 of the Companies Act 2014, expressed as a percentage of the net
assets of the Group at the beginning and end of the current and preceding financial years is less than 1%.
Details of transactions with the Directors, key management personnel and their connected persons where
indicated, for the years ended 31 December 2021 and 2020 are as follows:
232
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
50. Related party transactions (continued)
Board of Directors
Balance as at
1 January
Amounts
advanced
during the
year
Amounts
repaid during
the year
Balance
as at
31 December
Aggregate
maximum
amount
outstanding
during the
year
Unused
credit
facilities
Panicos Nicolaou
€000 €000 €000 €000 €000 €000
2021
Loans 95 - 60 35 95 -
Overdrafts/ credit cards
2
n/a n/a
3 4 45
97 38 99 45
2020
Loans 106 - 11 95 106 -
Overdrafts/ credit cards
1
n/a n/a
2 2 46
107 97 108 46
Balance as at
1 January
Amounts
advanced
during the
year
Amounts
repaid during
the year
Balance
as at
31 December
Aggregate
maximum
amount
outstanding
during the
year
Unused
credit
facilities
Eliza
Livadiotou
€000 €000 €000 €000 €000 €000
2021
Loans 30 77 8 99 102 -
Overdrafts/ credit cards
9
n/a n/a
8 33 55
39 107 135 55
Balance as at
1 January
Amounts
advanced
during the
year
Amounts
repaid during
the year
Balance
as at
31 December
Aggregate
maximum
amount
outstanding
during the
year
Unused
credit
facilities
Christodoulos Patsalides
€000 €000 €000 €000 €000 €000
2020
Loans 164 - 24 n/a n/a n/a
Overdrafts/ credit cards
36
n/a n/a n/a n/a n/a
200
- - -
233
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
50. Related party transactions (continued)
Balance as at
1 January
Amounts
advanced
during the
year
Amounts
repaid during
the year
Balance
as at
31 December
Aggregate
maximum
amount
outstanding
during the
year
Unused
credit
facilities
Ioannis Zographakis
€000 €000 €000 €000 €000 €000
2021
Overdrafts/ credit cards
1
n/a n/a
2 4 8
2020
Overdrafts/ credit cards
1
n/a n/a
1 1 9
Balance as at
1 January
Amounts
advanced
during the
year
Amounts
repaid during
the year
Balance
as at
31 December
Aggregate
maximum
amount
outstanding
during the
year
Unused
credit
facilities
Nicolaos Sofianos
€000 €000 €000 €000 €000 €000
2021
Overdrafts/ credit cards
1
n/a n/a
1 5 4
In addition, during the year Mrs Eliza Livadiotou was a guarantor for one facility with a balance of €190
thousand as at 1 January 2021 which was derecognised in the year.
The balances included in the table above include principal and interest. Also, amounts advanced and repaid
are not shown for overdraft and credit card facilities as these are revolving in nature. The aggregate
maximum amount outstanding includes credit card exposures at the maximum statement balance.
No other Directors had any loan facilities or overdraft/credit card balances with the Group during the year
ended 31 December 2021 (2020: nil).
The aggregate expected credit loss allowance on the above loans and credit facilities is below €5 thousand
as at 31 December 2021. All interest that has fallen due on these loans or credit facilities has been paid.
During 2021, no Directors resigned from the Board of Directors (2020: two Directors).
Connected persons of the Board of Directors
The aggregate of loans to connected person of Directors in office at 31 December 2021, as defined in
section 220 of the Companies Act 2014, are as follows (aggregate of 2 persons; 2020: 1 person):
Balance as at
1 January
Amounts
advanced during
the year
Amounts repaid
during the year
Balance as at
31 December
Aggregate
maximum
amount
outstanding
during
the year
Panicos Nicolaou
€000 €000 €000 €000 €000
2021
Overdrafts/credit cards
-
n/a n/a
1 3
2020
Overdrafts/credit cards
1
n/a n/a
- 3
234
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
50. Related party transactions (continued)
Balance as at
1 January
(or appointment
date)
Amounts
advanced during
the year
Amounts repaid
during the year
Balance as at
31 December
Aggregate
maximum
amount
outstanding
during the year
Eliza Livadiotou
€000 €000 €000 €000 €000
2021
Loans 91 - 11 83 91
Overdrafts/credit cards
11
n/a n/a
7 11
102 90 102
The balances included in the table above include principal and interest. Also, amounts advanced and repaid
are not shown for overdraft and credit card facilities as these are revolving in nature. The aggregate
maximum amount outstanding includes credit card exposures at the maximum statement balance.
The aggregate expected credit loss allowance on the above loans and credit facilities is below €5 thousand
as at 31 December 2021. All interest that has fallen due on these loans or credit facilities has been paid.
Key management personnel in office during the year (and their connected persons)
Balance as at
1 January
Balances of
key
management
personnel
appointed in
the year
Other
movements on
balances of
key
management
personnel and
their connected
persons during
the year
Amounts
advanced during
the year
Amounts repaid
during the year
Balance as at
31 December
Aggregate
maximum
amount
outstanding
during the
year (Since
appointment
date)
2021
€000 €000 €000 €000 €000 €000 €000
Loans 21,398 - 18,572 25 311 1,836 21,398
Overdrafts/credit cards
472
n/a n/a n/a n/a
453 507
21,870 2,289 21,905
2020
Loans 21,712 - - 236 1,339 21,398 21,712
Overdrafts/credit cards
515
n/a n/a n/a n/a
472 515
22,227 21,870 22,227
The balances included in the table above include principal and interest. Also, amounts advanced and repaid
are not shown for overdraft and credit card facilities as these are revolving in nature. The aggregate
maximum amount outstanding includes credit card exposures at the maximum statement balance. Other
movements on balances of key management personnel and their connected persons during the year relate
mainly to balances of connected entities that ceased to be connected to key management personnel during
the year ended 31 December 2021.
The aggregate expected credit loss allowance on the above loans and credit facilities is below €5 thousand
as at 31 December 2021. All interest that has fallen due on these loans or credit facilities has been paid.
235
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
50. Related party transactions (continued)
Aggregate amounts outstanding at year end and additional transactions
2021 2020 2021 2020
Number of directors €000 €000
Loans and advances as at 31 December
- Board of Directors
12 9
148 98
- key management personnel
17 18
2,216 2,417
Connected persons
164 19,453
2,528 21,968
Interest income for the year
394 710
Commission income for the year
1 3
Insurance premium income for the year
367 257
Subscriptions and insurance expenses
for the year
377 461
Accruals and other liabilities as at 31 December with entity providing
key management personnel services
1,199 2,013
Staff costs, consultancy, restructuring and other expenditure with
entity providing key management personnel services
9,980 10,087
The above table does not include year-end balances for members of the Board of Directors and their
connected persons who resigned during the year, nor balances of customers that do not meet the definition
of connected persons as at 31 December 2021.
Interest income and expense are disclosed for the period during which they were members of the Board of
Directors or served as key management personnel.
In addition to loans and advances, there were contingent liabilities and commitments in respect of members
of the Board of Directors and their connected persons, mainly in the form of documentary credits,
guarantees and commitments to lend, amounting to €133 thousand as at 31 December 2021 (2020: €57
thousand).
There were also contingent liabilities and commitments to other key management personnel and their
connected persons amounting to €573 thousand as at 31 December 2021 (2020: €3,007 thousand).
The total unsecured amount of the loans and advances and contingent liabilities and commitments to
members of the Board of Directors, key management personnel and other connected persons (using forced-
sale values for tangible collaterals and assigning no value to other types of collaterals) at 31 December
2021 amounted to €774 thousand (2020: €1,197 thousand).
At 31 December 2021 the Group has a deposit of €2,891 thousand (2020: €4,081 thousand) with Piraeus
Bank SA, in which Mr Arne Berggren is a non-executive Director. The Group has also provided certain
indemnities to Piraeus Bank SA as part of the disposal of Kyprou Leasing SA in 2015.
During the year ended 31 December 2021 premiums of €152 thousand (2020: €26 thousand) and claims of
€19 thousand (2020: €15 thousand) were paid between the members of the Board of Directors of the
Company and their connected persons and the insurance subsidiaries of the Group.
There were no other transactions during the year ended 31 December 2021 and the year ended 31
December 2020 with connected persons of the current members of the Board of Directors or with any
members who resigned during the period/year.
236
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
51. Group companies
The main subsidiary companies and branches included in the Consolidated Financial Statements of the
Group, their registered office, their activities and the percentage held by the Company (directly or
indirectly) as at 31 December 2021 are:
Company
Registered office Activities
Percentage
holding
(%)
Bank of Cyprus Holdings Public Limited
Company
10 Earlsfort Terrace, Dublin 2,
D02 T380, Ireland
Holding company n/a
Bank of Cyprus Public Company Ltd
51 Stasinos Street, Ayia Paraskevi,
Strovolos, CY-2002, Nicosia,
Cyprus
Commercial bank 100
EuroLife Ltd
4 Evrou Street, CY-2003, Strovolos,
Nicosia, Cyprus
Life insurance 100
General Insurance of Cyprus Ltd
2-4 Themistokli Dervis Street,
CY-1066, Nicosia, Cyprus
Non-life insurance 100
JCC Payment Systems Ltd
1 Stadiou Street, CY-2571, Nisou,
Cyprus
Card processing
transaction services
75
The Cyprus Investment and Securities
Corporation Ltd (CISCO)
1 Agiou Prokopiou and Poseidonos
Street, CY-2406, Engkomi, Nicosia,
Cyprus
Investment banking
and brokerage
100
BOC Asset Management Ltd
1 Agiou Prokopiou and Poseidonos
Street, CY-2406, Engkomi, Nicosia,
Cyprus
Management
administration and
safekeeping of UCITS
Units
100
LCP Holdings and Investments Public Ltd
1 Agiou Prokopiou and Poseidonos
Street, CY-2406, Engkomi, Nicosia,
Cyprus
Investments in
securities and
participations in
companies and
schemes that are
active in various
business sectors and
projects
67
Kermia Ltd
51 Stasinos Street, Ayia Paraskevi,
Strovolos, CY-2002, Nicosia,
Cyprus
Property trading and
development
100
Kermia Properties & Investments Ltd
51 Stasinos Street, Ayia Paraskevi,
Strovolos, CY-2002, Nicosia,
Cyprus
Property trading and
development
100
S.Z. Eliades Leisure Ltd
51 Stasinos Street, Ayia Paraskevi,
Strovolos, CY-2002, Nicosia,
Cyprus
Land development and
operation of a golf
resort
70
Auction Yard Ltd
51 Stasinos Street, Ayia Paraskevi,
Strovolos, CY-2002, Nicosia,
Cyprus
Auction company 100
BOC Secretarial Company Ltd
51 Stasinos Street, Ayia Paraskevi,
Strovolos, CY-2002, Nicosia,
Cyprus
Secretarial services 100
Bank of Cyprus Public Company Ltd
(branch of BOC PCL)
192 Alexandras Avenue,
11521 Athens, Greece
Administration of
guarantees and
holding of real estate
properties
n/a
BOC Asset Management Romania S.A.
Calea Dorobonti 187B, Sector 1,
Bucharest, Romania
Collection of the
existing portfolio of
receivables, including
third party collections
100
MC Investment Assets Management LLC
19-1 Zvezdnyi building, Moscow,
Russia
Problem asset
management company
100
Fortuna Astrum Ltd
Internacionalnih Brigada 69,
11104, Grad Beograd, Serbia
Problem asset
management company
100
237
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
51. Group companies (continued)
In addition to the above companies, as at 31 December 2021 BOC PCL had 100% shareholding in the
companies listed below, whose activity is the ownership and management of immovable property:
Cyprus: Hamura Properties Ltd, Noleta Properties Ltd, Tolmeco Properties Ltd, Arlona Properties Ltd, Dilero
Properties Ltd, Ensolo Properties Ltd, Pelika Properties Ltd, Cobhan Properties Ltd, Innerwick Properties Ltd,
Ramendi Properties Ltd, Nalmosa Properties Ltd, Emovera Properties Ltd, Estaga Properties Ltd, Skellom
Properties Ltd, Blodar Properties Ltd, Tebane Properties Ltd, Cranmer Properties Ltd, Vieman Ltd, Les
Coraux Estates Ltd, Natakon Company Ltd, Oceania Ltd, Dominion Industries Ltd, Ledra Estate Ltd, EuroLife
Properties Ltd, Laiki Lefkothea Center Ltd, Labancor Ltd, Joberco Ltd, Zecomex Ltd, Domita Estates Ltd,
Memdes Estates Ltd, Thryan Properties Ltd, Edoric Properties Ltd, Canosa Properties Ltd, Kernland
Properties Ltd, Jobelis Properties Ltd, Melsolia Properties Ltd, Koralmon Properties Ltd, Spacous Properties
Ltd, Calinora Properties Ltd, Marcozaco Properties Ltd, Soluto Properties Ltd, Solomaco Properties Ltd,
Linaland Properties Ltd, Unital Properties Ltd, Neraland Properties Ltd, Wingstreet Properties Ltd, Nolory
Properties Ltd, Lynoco Properties Ltd, Fitrus Properties Ltd, Lisbo Properties Ltd, Mantinec Properties Ltd,
Colar Properties Ltd, Irisa Properties Ltd, Provezaco Properties Ltd, Hillbay Properties Ltd, Ofraco Properties
Ltd, Forenaco Properties Ltd, Hovita Properties Ltd, Astromeria Properties Ltd, Regetona Properties Ltd,
Arcandello Properties Ltd, Camela Properties Ltd, Fareland Properties Ltd, Barosca Properties Ltd, Fogland
Properties Ltd, Tebasco Properties Ltd, Homirova Properties Ltd, Valecross Properties Ltd, Altco Properties
Ltd, Olivero Properties Ltd, Jaselo Properties Ltd, Elosa Properties Ltd, Flona Properties Ltd, Toreva
Properties Ltd, Resoma Properties Ltd, Mostero Properties Ltd, Helal Properties Ltd, Yossi Properties Ltd,
Pendalo Properties Ltd, Frontyard Properties Ltd, Bonsova Properties Ltd, Garmozy Properties Ltd, Palmco
Properties Ltd, Thermano Properties Ltd, Venicous Properties Ltd, Lorman Properties Ltd, Eracor Properties
Ltd, Rulemon Properties Ltd, Thelemic Properties Ltd, Maledico Properties Ltd, Dentorio Properties Ltd,
Valioco Properties Ltd, Bascone Properties Ltd, Balasec Properties Ltd, Bendolio Properties Ltd, Diafor
Properties Ltd, Kartama Properties Ltd, Paradexia Properties Ltd, Paramina Properties Ltd, Nouralia
Properties Ltd, Resocot Properties Ltd, Soblano Properties Ltd, Talamon Properties Ltd, Weinar Properties
Ltd, Zemialand Properties Ltd, Asianco Properties Ltd, Cimonia Properties Ltd, Coeval Properties Ltd,
Comenal Properties Ltd, Finevo Properties Ltd, Mazima Properties Ltd, Nesia Properties Ltd, Nigora
Properties Ltd, Riveland Properties Ltd, Rosalica Properties Ltd, Secretsky Properties Ltd, Senadaco
Properties Ltd, Tasabo Properties Ltd, Venetolio Properties Ltd, Zandexo Properties Ltd, Flymoon Properties
Ltd, Meriaco Properties Ltd, Odolo Properties Ltd, Calandomo Properties Ltd, Molemo Properties Ltd, Nivamo
Properties Ltd, Edilia Properties Ltd, Limoro Properties Ltd, Samilo Properties Ltd, Jalimo Properties Ltd,
Sendilo Properties Ltd, Baleland Properties Ltd, Prodino Properties Ltd, Alezia Properties Ltd, Stevolo
Properties Ltd and Zenoplus Properties Ltd.
Romania: Otherland Properties Dorobanti SRL, Green Hills Properties SRL, Imoreth Properties SRL, Inroda
Properties SRL, Zunimar Properties SRL, Allioma Properties SRL and Nikaba Properties SRL.
Further, at 31 December 2021 BOC PCL had 100% shareholding in Obafemi Holdings Ltd, Stamoland
Properties Ltd, Unoplan Properties Ltd, Petrassimo Properties Ltd and Gosman Properties Ltd.
The main activities of the above companies are the holding of shares and other investments and the
provision of services.
At 31 December 2021 BOC PCL had 100% shareholding in BOC Terra AIF V.C.I Plc which is a real estate
alternative investment fund.
At 31 December 2021 BOC PCL had 100% shareholding in the companies listed below which are reserved to
accept property:
Cyprus: Tavoni Properties Ltd, Amary Properties Ltd, Holstone Properties Ltd, Alepar Properties Ltd,
Cramonco Properties Ltd, Monata Properties Ltd, Aktilo Properties Ltd, Aparno Properties Ltd, Enelo
Properties Ltd, Stormino Properties Ltd, Lomenia Properties Ltd, Vertilia Properties Ltd, Carilo Properties
Ltd, Gelimo Properties Ltd, Rifelo Properties Ltd, Avaleto Properties Ltd, Midelox Properties Ltd, Ameleto
Properties Ltd, Orilema Properties Ltd, Montira Properties Ltd, Larizemo Properties Ltd and Olisto Properties
Ltd.
In addition, BOC PCL holds 100% of the following intermediate holding companies:
Cyprus: Otherland Properties Ltd, Battersee Properties Ltd, Trecoda Properties Ltd, Bonayia Properties Ltd,
Romaland Properties Ltd, Janoland Properties Ltd, Imoreth Properties Ltd, Inroda Properties Ltd, Zunimar
Properties Ltd, Nikaba Properties Ltd, Allioma Properties Ltd, Landanafield Properties Ltd and Hydrobius Ltd.
238
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
51. Group companies (continued)
BOC PCL also holds 100% of the following companies which are inactive:
Cyprus: Birkdale Properties Ltd, Laiki Bank (Nominees) Ltd, Thames Properties Ltd, Folimo Properties Ltd,
Paneuropean Ltd, Philiki Ltd, Nelcon Transport Co. Ltd, Weinco Properties Ltd, Iperi Properties Ltd, Finerose
Properties Ltd, CYCMC II Ltd, CYCMC IV Ltd and Steparco Ltd.
Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of General Insurance of Cyprus
Ltd), Kyprou Commercial SA and Kyprou Properties SA.
All Group companies are accounted for as subsidiaries using the full consolidation method. All companies
listed above have share capital consisting of ordinary shares.
Restructuring of its investment banking and brokerage activities
On 19 November 2020, the Group proceeded with a restructuring of its investment banking and brokerage
activities through the acquisition by CISCO of LCP Holdings and Investments Public Ltd and CLR Investment
Fund Public Ltd. This was achieved by an increase in the share capital of CISCO to BOC PCL in exchange of
the shares held by BOC PCL in both companies. In particular, 67% of LCP Holdings and Investments Public
Ltd and 20% in CLR Investment Fund Public Ltd were owned by CISCO as at 31 December 2020. In January
2021, CISCO also proceeded with the acquisition of BOC Asset Management Ltd from BOC PCL. The above
restructuring did not have an impact on the results of the Group.
Dissolution and disposal of subsidiaries
As at 31 December 2021, the following subsidiaries were in the process of dissolution or in the process of
being struck off: Renalandia Properties Ltd, Crolandia Properties Ltd, Fantasio Properties Ltd, Demoro
Properties Ltd, Elosis Properties Ltd, Polkima Properties Ltd, Pariza Properties Ltd, Prosilia Properties Ltd,
Otoba Properties Ltd, Dolapo Properties Ltd, Nivoco Properties Ltd, Bramwell Properties Ltd, Blindingqueen
Properties Ltd, Buchuland Properties Ltd, Fairford Properties Ltd, Salecom Ltd, Sylvesta Properties Ltd,
Fledgego Properties Ltd, Bocaland Properties Ltd, Tantora Properties Ltd, Selilar Properties Ltd, Cyprialife
Ltd, Imperial Life Assurances Ltd, Philiki Management Services Ltd and Battersee Real Estate SRL.
Frozenport Properties Ltd, Loneland Properties Ltd, Unknownplan Properties Ltd, BC Romanoland Properties
Ltd, Mirodi Properties Ltd, Nallora Properties Ltd, Corner LLC, Leasing Finance LLC, Omiks Finance LLC,
Trecoda Real Estate SRL, Commonland Properties Ltd, Melgred Properties Ltd and Romaland Properties SRL
were dissolved during the year ended 31 December 2021. Global Balanced Fund of Funds Salamis Variable
Capital Investment Company PLC (formerly Cytrustees Investment Public Company Ltd), Jongeling
Properties Ltd, Kedonian Properties Ltd, Mikosa Properties Ltd, Vemoto Properties Ltd, Subworld Properties
Ltd, Intelamon Properties Ltd, Rofeno Properties Ltd, Belvesi Properties Ltd, Icazo Properties Ltd, Lasteno
Properties Ltd, Orzo Properties Ltd, Andaz Properties Ltd, CYCMC III Ltd and CLR Investment Fund Public
Ltd and subsequently its indirect holding in CLR's subsidiaries (Europrofit Capital Investors Public Ltd, Axxel
Ventures Ltd and CLR Private Equity Ltd) were disposed of during the year ended 31 December 2021.
Acquisitions and disposals of subsidiaries
During the years 2021 and 2020 there were no acquisitions of subsidiaries.
During the year ended 31 December 2021, the Group disposed of its 100% shareholding in Global Balanced
Fund of Funds Salamis Variable Capital Investment Company PLC and recorded a loss on disposal of €458
thousand in the consolidated income statement for the year ended 31 December 2021 (Note 11). In
addition, the Group proceeded with the disposal of its 20% shareholding in CLR Investment Fund Public Ltd
in October 2021. The disposal resulted in a loss of €66 thousand, which has been recognised in the
consolidated income statement for the year ended 31 December 2021 (Note 11).
There were no material disposals of subsidiaries during the year ended 31 December 2020.
239
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
52. Investments in associates and joint venture
Carrying value of the investments in associates and joint venture
Percentage
holding
Type of
investment
2021 2020
(%) €000 €000
Apollo Global Equity Fund of Funds Variable
Capital Investment Company Plc - Associate
- 2,462
Aris Capital Management LLC
30.0 Associate
- -
Rosequeens Properties Limited
33.3 Associate
- -
Rosequeens Properties SRL
33.3 Associate
- -
Tsiros (Agios Tychon) Ltd
50.0 Joint Venture
- -
Fairways Automotive Holdings Ltd
45.0 Associate
- -
- 2,462
The carrying values of the investments in associates and joint venture are considered to be fully impaired
and their value has been restricted to zero.
Share of pre-tax profit from associates
2021 2020
€000 €000
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc
137 69
137 69
Apollo Global Equity Fund of Funds Variable Capital Investment Company Plc (Apollo)
In March 2021 the Group completed the sale of its entire holding of 34.2% of the UCITS of Apollo. The
Group considered that it exercised significant influence over Apollo even though no Board representation
existed, because due to its UCITS holdings, it possessed the power to potentially appoint members of the
Board of Directors. During the year ended 31 December 2021, an amount of €137 thousand was recognised
in the consolidated income statement as the Group's share of profit from Apollo. The loss on the sale of the
investment in associate amounted to €97 thousand and has been recognised in 'Net (losses)/gains on
financial instrument transactions and disposal/dissolution of subsidiaries and associates' (Note 11) during
the year ended 31 December 2021.
240
BANK OF CYPRUS HOLDINGS GROUP
Annual Financial Report 2021
Notes to the Consolidated Financial Statements
53. Country by country reporting
Article 89 of CRD IV requires banks to disclose on a consolidated basis the following information for all countries where the Group operates. The table below
provides information on the following items of the Group for year 2021:
Total operating
income/(expense)
Average number
of employees
Profit/(loss)
before tax
Accounting tax
expense/(income)
on profit/(loss)
Corporation tax
paid/(refunded)
Public subsidies
received
Country €000 €000 €000 €000 €000
Cyprus 547,037 3,515 44,099 5,535 4,031 -
Russia (30) 4 (5,724) - - -
Romania (518) 5 (942) - 9 -
Greece
3,406 6 (1,313) (1,933) (1,974) -
Total
549,895 3,530 36,120 3,602 2,066 -
Total operating income/(expense), profit/(loss) before tax and accounting tax expense/(income) on profit/(loss) are prepared on the same basis as the figures
reported elsewhere in these financial statements.
The activities of Group companies by geographical area are disclosed in Note 51.
Total operating income/(expense): comprises net interest income, net fee and commission income, net foreign exchange gains, net gains on financial
instrument transactions, insurance income net of claims and commissions, gains/(losses) from revaluation and disposal of investment properties,
gains/(losses) on disposal of stock of property and other income.
Number of employees: the number of employees has been calculated as the average number of employees, on a quarterly basis, who were employed by the
Group during the year ended 31 December 2021.
Profit/(loss) before tax: profit/(loss) before tax represents profits/(losses) after the deduction of inter-segment revenues/(expenses).
Accounting tax expense/(income) on profit/(loss): includes corporation tax and Cyprus special defence contribution. Deferred tax charge for the year is
excluded.
Corporation tax paid/(refunded) includes actual payments made during 2021 for corporation tax (including insurance premium taxes) and Cyprus special
defence contribution.
241
BANK OF CYPRUS HOLDINGS GROUP
Notes to the Consolidated Financial Statements
54. Events after the reporting period
Ukrainian crisis
Russia’s invasion of Ukraine on 24 February 2022 has triggered disruptions and uncertainties in the markets
and the global economy, as well as coordinated implementation of sanctions the EU, UK and the U.S., in a
coordinated effort joined by several other countries, imposed against Russia, Belarus and certain regions of
Ukraine and certain Russian entities and nationals. The Group’s policy is to comply with all applicable laws,
including sanctions and export controls. At present, numerous complex regimes are developing rapidly in
response to the military conflict and the Group is working carefully and assiduously to comply with all
relevant requirements and to address their potential consequences.
The Group’s direct gross lending risk exposure (including loans and advances to customers classified as held
for sale) to Russia, Ukraine and Belarus was approximately €119 million (net book value of such exposure
at €110 million) across its business divisions as at 31 December 2021, of which €95 million were classified
as performing (the basis of the exposure is expanded compared to the country risk exposure as included in
Note 45.2 of the Consolidated Financial Statements which is disclosed by reference to the country of
residency/country of registration, to also include exposures for loans and advances to customers with
passport of origin in these countries and/or business activities within these countries and/or where the UBO
has passport of origin or residency in these countries). Customer deposits related to Russian/Ukrainian
customers are disclosed in Note 31 of the Consolidated Financial Statements.
Further, the Group had Rubble denominated loans and advances to banks of approximately €1 million as at
31 December 2021, and amounting to approximately €9 million as at 21 March 2022. Group’s investments
at amortised cost included Euro denominated debt securities of a carrying amount of €21.7 million relating
to debt securities of a European Union country issuer with significant exposure in Russia and Ukraine, which
was reduced by €10 million in March 2022. With respect to derivatives, it is noted that the Group reduced
its exposure in Rubble denominated derivatives to nil in March 2022. There were no other investments
relating to issuers with significant exposure to Russia and/or Ukraine. The Group’s balance sheet as at 31
December 2021 also included net assets of approximately €10 million held in the Group’s Russian
subsidiary; forming part of the Group’s overseas legacy operations which are being run down.
Although the Group’s direct exposure to the region is limited, the invasion of Russia to Ukraine could result
in prolonged/elevated geopolitical instability, trade restrictions, disruptions to global supply chains,
increases in energy prices with flow-on global inflationary impacts, and a potential negative impact in the
domestic, regional and global economy. The potential impacts from the Russian invasion of Ukraine remain
uncertain, including but not limited to, on economic conditions, asset valuations, interest rate expectations
and exchange rates. In the event that a significant decrease in the number and volume of transactions
occur as a result of the crisis, this may adversely impact transactional net fee and commission income for
the Group, particularly in International Banking Services.
The Group will continue to closely monitor related effects on its financial position, including estimated direct
and indirect impacts on expected credit loss calculations and on fair value measurement of assets, liabilities
and off-balance sheet exposures as well as impact on operating profit.
Voluntary exit plan by JCC Payment Systems Ltd
In January 2022, the Group’s subsidiary company JCC Payment Systems Ltd proceeded with a voluntary
exit plan for its employees, with a cost amounting to €2,901 thousand. In total, 14 employees accepted the
voluntary exit plan and are expected to leave the Group by the end of the first half of 2022.
Subordinated Tier 2 Capital Note - January 2017
On 19 January 2022, BOC PCL proceeded with the redemption of the remaining outstanding amount of
Subordinated Tier 2 Capital Note - January 2017, of a total nominal value of €43 million, as disclosed in
Note 33.
242
Independent auditors’ report to the members of Bank of Cyprus
Holdings public limited company
Report on the audit of the financial statements
Opinion
In our opinion, Bank of Cyprus Holdings public limited company’s consolidated financial statements and company
financial statements (the “financial statements”):
● give a true and fair view of the group’s and the company’s assets, liabilities and financial position as at 31 December
2021 and of the group’s and the company’s profit and cash flows for the year then ended;
● have been properly prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted
by the European Union; and
● have been properly prepared in accordance with the requirements of the Companies Act 2014 and, as regards the
consolidated financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Financial Report 2021 (the “Annual Report”), which
comprise:
● the Consolidated and Company Balance Sheets as at 31 December 2021;
● the Consolidated Income Statement and Consolidated and Company Statements of Comprehensive Income for the
year then ended;
● the Consolidated and Company Statements of Cash Flows for the year then ended;
● the Consolidated and Company Statements of Changes in Equity for the year then ended; and
● the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (“ISAs (Ireland)”) and
applicable law. Our responsibilities under ISAs (Ireland) are further described in the Auditors’ responsibilities for the
audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in Ireland, which includes IAASA’s Ethical Standard as applicable to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by IAASA’s Ethical Standard were
not provided to the group or the company.
Other than those disclosed in note 15 to the financial statements, we have provided no non-audit services to the group or
the company in the period from 1 January 2021 to 31 December 2021.
243
Our audit approach
Overview
Materiality
● €16.5m (2020: €16.5m) - Consolidated financial statements
● Based on c.1% of net assets.
● €14.5m (2020: €13.7m) - Company financial statements
● Based on c.1% of net assets.
Audit scope
● We audited the complete financial information of Bank of Cyprus public company
limited (pcl), which is the main trading entity of the Group and the only directly
held subsidiary of Bank of Cyprus Holdings public limited company.
● Our audit scope addressed in excess of 95% of the Group’s revenues, the Group’s
absolute value of underlying profit and the Group’s total assets.
Key audit matters
● Impairment of loans and advances to customers.
● Going concern.
● Litigation provisions and regulatory and other claims.
● Valuation of repossessed properties.
● Privileged user access.
● Carrying value of investment in Bank of Cyprus pcl (company only).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial
statements. In particular, we looked at where the directors made subjective judgements, for example in respect of
significant accounting estimates that involved making assumptions and considering future events that are inherently
uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including
evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to
fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
244
Key audit matter
How our audit addressed the key audit matter
Impairment of loans and advances to customers
Refer to Note 2.19 “Impairment of financial assets” within
Note 2 “Summary of significant accounting policies”, Note
5.2 “Calculation of expected credit losses” within Note 5
“Significant and other judgements, estimates and
assumptions”, Note 23 “Loans and advances to customers”
and Note 45 “Risk management - credit risk”.
The Group has developed complex models to calculate
expected credit losses (“ECL”) on its loans and advances to
customers. Impairment provisions are calculated on a
collective basis for portfolios of loans of similar credit risk
characteristics and on an individual basis for loans that are
individually significant or which meet specific criteria
determined by management.
We determined this to be a key audit matter due to the
significant judgement exercised by management and the
complexity in making the estimate including:
● The interpretations and assumptions required to build
the models, including the segmentation employed;
● The allocation of loans and advances to customers
within Stages 1, 2 or 3 including consideration of
relevant overlays, where applicable;
● Identifying ‘Significant Increase in Credit Risk’; and
● The inputs, assumptions and probability weights
assigned to multiple economic scenarios as used by the
Group.
We understood and evaluated the overall control
framework and tested the design and operating
effectiveness of key controls across processes relevant to the
calculation of ECL. We tested the completeness and
accuracy of data inputs to the ECL model on a sample basis.
We read and considered the minutes of the Joint Audit &
Risk committee meetings where key inputs, assumptions,
adjustments and outcomes were discussed and approved by
the Joint Audit & Risk committee.
We assessed the appropriateness of the key assumptions used
in the methodologies and models developed by the Group
and their compliance with the requirements of IFRS 9.
We assessed the triggers identified by management to
determine the appropriate staging of loans within Stages 1, 2
or 3 and tested, on a sample basis, the criteria used to
allocate loans and advances to customers to Stages 1, 2 or 3
with reference to those triggers. As part of this, we
considered staging overlays, in particular those applied by
management with respect to COVID 19 impacted customers,
where applicable.
We tested, with the assistance of PwC credit risk experts, the
assumptions, inputs and formulas used in the calculation of
collective ECL. This included considering the
appropriateness of model design and challenging the
assumptions used (e.g., Exposure at Default, Loss Given
Default and Probability of Default), and the appropriateness
of the segmentation employed. We built an ECL calculator
“challenger model’’, on the basis of which an independent
point ECL estimate was developed and compared against the
Group’s own calculation.
We evaluated the Group’s individual assessments for a
sample of material Stage 3 exposures for compliance with
the Group’s policies, developments during 2021 and
compliance with IFRS 9 requirements; significant data inputs
were tested with reference to appropriate supporting
documentation, such as collateral valuations and Land
Registry records.
We considered the impact on the Group’s ECL charge of
expected realisation through disposals of certain loan
portfolios comprising primarily Stage 3 loans and
determined whether the related ECL charge is reasonable.
We compared, with the assistance of PwC credit risk experts,
the forward-looking macroeconomic assumptions used in the
base, upturn and downturn scenarios to publicly available
information. We also considered the reasonableness of the
downturn and upturn assumptions in conjunction with the
scenario weightings applied by management.
245
We evaluated the appropriateness of the Group’s disclosures
particularly in relation to significant judgements and
estimates.
We concluded that the methodologies and judgements used
by management in determining the ECL charge were
reasonable, that the ECL provisions recognised were
reasonable and the disclosures made in relation to these
matters in the consolidated financial statements were
appropriate.
Going concern
Refer to note 3 to the financial statements and pages 293
and 314 in the Corporate Governance report.
The Directors have determined that it is appropriate to
prepare the financial statements using the going concern
assumption and that no material uncertainties exist relating
to events or conditions that, individually or collectively, may
cast significant doubt on the Group’s and company’s ability
to continue as a going concern. In making their assessment,
the Directors have considered a period of at least twelve
months from the date of approval of the financial statements.
We considered the Group’s assessment of its capital and
liquidity position at 31 December 2021 including the
improvements noted by management since 31 December
2020. Management has considered two prospective
macroeconomic scenarios and then assessed the resulting
Group capital and liquidity ratios for comparison against
regulatory requirements. The development of these scenarios
requires considerable management judgement. Particular
consideration has been given to assessing any residual
impact of COVID-19 as well as recent geopolitical
developments pertaining to the Russian invasion of Ukraine.
We determined this to be a key audit matter due to the
ongoing focus on the capital adequacy for the Group and the
judgements and assumptions underlying the delivery of the
Group’s Financial Plan.
We obtained the Directors’ going concern assessment and
assessed whether events and conditions exist that create
material uncertainty that may cast significant doubt on the
Group’s ability to continue as a going concern.
We read correspondence with the relevant regulators with
regards to regulatory capital and liquidity requirements of
the Group, as well as other correspondence such as the
findings of the ECB’s Supervisory Review and Evaluation
Process (SREP) which determines the Group’s required
Regulatory ratios.
We considered the Group’s 4 year Financial Plan approved by
the Board in February 2022. We compared the Group’s CET1
and other capital and liquidity ratios as included in
management’s going concern assessment versus regulatory
reporting submissions of the Group.
We evaluated the Group’s assessment of the impact of the
projected macroeconomic scenarios on its liquidity and
capital ratios for the period of assessment. In particular, we:
● Considered the Group’s models used to develop
projected future operating results, cash flows and
estimates of assets and liabilities and challenged the
assumptions underlying them by reference to past
experience;
● Assessed the Group’s development of alternative
(base and adverse) macroeconomic scenarios by
reference to internal and external forecasts for the
performance of the Cypriot economy over the next
two years.
● Considered the Group’s estimates with respect to
projected liquidity, in the context of liquidity stress
testing.
● Assessed the Group’s estimation of the expected
ECL impact on the customer loan portfolio and the
valuation of property assets held as collateral and
their consistency with the macroeconomic scenarios
under consideration.
We evaluated and stress-tested the Group’s assessment of the
possible impact of recent geopolitical developments
pertaining to the Russia Ukraine conflict on the Group’s
forecast capital ratios.
246
We also evaluated the disclosures made in the financial
statements and assessed whether they reflected the basis of
the conclusions of the Directors’ assessment.
We concluded that the judgements made by the Directors in
preparing the financial statements on a going concern basis
were reasonable and the disclosures made in relation to these
matters in the financial statements were appropriate.
Litigation provisions and regulatory and other claims
Refer to Note 2.36 “Provisions for pending litigation,
claims, regulatory and other matters” within Note 2
“Summary of significant accounting policies”, Note 5.4
“Provisions for pending litigation, claims, regulatory and
other matters” within Note 5 “Significant and other
judgements, estimates and assumptions” and Note 39
“Pending litigation, claims, regulatory and other matters”.
The Group is subject to various legal claims, investigations
and other proceedings. Provisions for pending litigation,
claims, regulatory and other matters amounted to €104m as
at 31 December 2021.
Management together with the Group’s compliance and legal
departments and, where necessary, the risk management
department, review all existing and potential legal cases,
prepare an assessment of potential outcomes for each
individual case and assess the probability of economic
outflow from the Group.
We have determined this to be a key audit matter as the
recognition and measurement of provisions in respect of
pending litigation, claims, regulatory and other matters
requires a significant level of judgement by management.
The judgements relate to the probability of obligating events
requiring an outflow of resources to settle the obligation and
the estimation of the extent of any related economic outflow.
We obtained an understanding of and evaluated the design of
controls relevant to the recognition and measurement of
litigation provisions and regulatory and other claims. We
tested the operating effectiveness of controls we wished to
rely on.
We evaluated a risk based sample of management’s
assessment of individual cases, including whether an
economic outflow was assessed as probable. We assessed
management’s proposed provisions against information
contained in case files and information obtained from
external legal advisors. Where deemed necessary, we
confirmed case facts and judgements directly with external
legal advisors.
For cases where economic outflow was assessed as probable
by management, and therefore a provision recorded, we
recalculated the provision and performed sensitivity analysis
on key assumptions used by management.
We understood the basis of management’s collective
provisions, in circumstances where these are applied,
assessed the key assumptions used by reference to past
experience and recalculated provisions booked.
We inspected the minutes of meetings of the board of
directors and certain of its committees for evidence of any
unidentified legal cases or relevant developments in current
cases.
We inspected regulatory correspondence and further
inquired with the compliance department about known
existing circumstances of possible non-compliance with any
regulatory requirements.
We evaluated whether the disclosures made addressed
significant uncertainties and assessed their adequacy against
the relevant accounting standards for both provisions and
contingencies as at 31 December 2021.
Based on evidence obtained, while noting the inherent
uncertainty in such matters, we concluded that the recorded
provisions for pending litigation, claims, regulatory and other
matters were reasonable and the disclosures made in relation
to these matters in the consolidated financial statements
were appropriate.
Valuation of repossessed properties
Refer to Note 2.30 “Stock of property”, within Note 2
“Summary of significant accounting policies”, Note 5.3
We evaluated the overall control framework relevant to
repossessed properties and tested the design and operating
effectiveness of key controls around their valuation.
247
“Stock of property - estimation of net realisable
value” within Note 5 “Significant and other judgements,
estimates and assumptions” and Note 27 “Stock of
properties”.
The Group has acquired a significant number of properties
as a result of restructuring agreements with customers.
These properties are accounted for as stock of property at
the lower of their cost or net realisable value in accordance
with IAS 2.
Valuations obtained from reputable external valuers are a
key input to determine the appropriate carrying value.
We determined this to be a key audit matter in light of the
large volume of properties held, the carrying value of these
properties of €1,112m at 31 December 2021 and the
uncertainty around market conditions when estimating the
carrying amount.
We focused on the key inputs and assumptions underlying
the valuation of the properties accounted for in accordance
with IAS 2.
We evaluated the competence, capability and objectivity of
management’s external experts (property valuers).
For a sample of external valuation reports, we assessed the
methodology and assumptions used with the assistance of
PwC valuation experts.
For a sample of properties acquired, we tested ‘cost’ by
reference to signed ‘debt-for-asset’ agreements entered into
with borrowers, and we tested the ‘net realisable value’ at
year end by reference to external valuation reports.
We performed look-back procedures by comparing the
price achieved for disposals during 2021 to the carrying
values for those assets at 31 December 2020.
We evaluated whether the disclosures address significant
judgements and estimates and assessed their adequacy
against the relevant accounting standards.
We concluded that the judgements and estimates used by
management in determining the carrying amount of
repossessed properties were reasonable and the disclosures
made in relation to these matters in the consolidated
financial statements were appropriate.
Privileged user access
Refer to pages 310 to 315 in the Corporate Governance
report.
The Group’s financial reporting is heavily reliant on IT
systems which have been in place for a number of years and
which are inherently complex, thereby creating an elevated
risk to financial reporting.
The Group relies on privileged user access controls which
are critical to ensuring that changes to applications and
underlying data are made in an appropriate manner and to
mitigate the risk of potential fraud or error.
We determined privileged user access to be a key audit
matter as our audit approach relies on IT dependent
controls and data and we performed extensive procedures
due to the nature of the legacy systems in place.
With the assistance of PwC IT audit specialists, we obtained
an understanding of the Group’s IT environment and
evaluated and tested the design and operating effectiveness
of those IT General Controls (ITGCs) on IT systems that
support financial reporting.
Where deficiencies in privileged user access controls were
identified, we sought to identify and test other compensating
controls. Where compensating controls or other mitigating
factors and circumstances were not identified, we performed
additional audit procedures in respect of user access rights.
Specifically, we:
● Extracted user access listings directly from the
production environment of relevant IT applications,
along with their supporting IT infrastructure to
validate the completeness of access rights within the
Group’s user access tool that supports the
management of user access, for the provision,
deprovision, and recertification of privileged access;
● Extracted the list of privileged users on the Group’s
data warehouse and considered the appropriateness of
access during 2021;
● Extracted the list of developers from the production IT
systems and release tools for those applications where
248
system functionality is managed in-house and
reviewed the appropriateness of developer access; and
● Considered the authentication controls of applications
and supporting IT infrastructure to assess compliance
with the Group’s password policy requirements.
After evaluating the results of these additional audit
procedures, where necessary our team performed further
audit procedures such that, we concluded that any residual
audit risk was reduced to an acceptable level.
Carrying value of investment in Bank of Cyprus pcl
(company only)
Refer to Note 2.3 “Investment in subsidiary” within Note 2
“Summary of significant accounting policies”, Note 3
“Significant accounting estimates, judgements and
assumptions”, Note 7 “Investment in subsidiary” to the
Company financial statements.
As noted in the accounting policies, investment in
subsidiaries is shown at cost in the Company financial
statements unless there is evidence of impairment, in which
case it is shown at cost less impairment.
The carrying value of the investment in subsidiaries
exceeded the market capitalisation of BOCH public limited
company at 31 December 2021. Having completed an
impairment test, the directors determined the recoverable
amount using a value-in-use approach (which is considered
to be higher than fair value less costs to sell) of the
investment and have booked a partial writeback of previous
impairment provisions in the amount of €50 million.
We considered this to be a key audit matter because of the
judgement associated with the assessment of the
recoverable amount of the investment at 31 December
2021.
We evaluated and tested controls over the recoverability
assessment.
We assessed the forecasts of expected cash flows included
in management’s value in use calculations at 31 December
2021 for consistency with the group’s recent trading
performance and detailed Financial Plan. We challenged
the basis on which management projected cash flows for
years after the Financial Plan period and evaluated their
reasonableness by reference to historic performance, future
plans and external data, as appropriate.
We considered management’s calculation of the Group’s
weighted average cost of capital by reference to external
sources used by management.
We reperformed management’s terminal value calculation
and considered the appropriateness of the long term growth
rate used by reference to external forecasts for the Cypriot
economy as at 31 December 2021.
We concluded that the impairment assessment in respect of
the investment in Bank of Cyprus pcl and the disclosures
made in the financial statements are reasonable.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the group, the accounting processes and controls, and the
industry in which the group operates.
Bank of Cyprus pcl is the main trading entity of the group and prepares consolidated financial statements which
consolidate all other subsidiaries of the Group. In establishing the overall approach to scoping the group audit
engagement, we determined the type of work that needed to be performed by legal entity.
The Group team was responsible for the scope and direction of the audit. In determining our audit scope, we considered
the nature and extent of audit work that needed to be performed by us, as the Irish Group engagement team and PwC
Cyprus, as component auditors. Where the work was performed by PwC Cyprus component auditors, we determined the
level of involvement the Group team needed to have to be able to conclude whether sufficient appropriate audit evidence
had been obtained as a basis for our opinion on the consolidated financial statements as a whole.
For the consolidated financial statements, an audit of the full financial information of Bank of Cyprus pcl was performed as
this accounts for in excess of 95% of the Group’s revenues, the Group’s absolute value of underlying profit and the Group’s
total assets, respectively. The nature and extent of audit procedures were determined by our risk assessment.
249
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual financial statement line items and disclosures and in
evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Consolidated financial statements
Company financial statements
Overall materiality
€16.5m (2020: €16.5m).
€14.5m (2020: €13.7m).
How we determined it
c.1% of net assets.
c.1% of net assets.
Rationale for
benchmark applied
Given the volatility in profit / loss before tax
over recent years resulting from elevated
impairment charges and the scale of losses
arising from exceptional activities, we
believe that net assets provide us with a
more appropriate and consistent year on
year basis for determining materiality rather
than profitability.
The Company is a holding company.
Consequently, we consider that net assets is
the most relevant measure to reflect the
nature of its activities and transactions.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
€800,000 (group audit) (2020: €825,000) and €725,000 (company audit) (2020: €685,000) as well as misstatements
below that amount that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group and company’s ability to continue to adopt the going concern
basis of accounting included:
● Performing a risk assessment to identify factors that could impact the going concern assessment, including the
impact of Covid-19 and the potential effect of the invasion of Ukraine by Russia.
● Understanding and evaluating the group’s financial forecasts and the group’s stress testing of liquidity and regulatory
capital. In evaluating these forecasts we considered the Group’s financial position, historic performance, its past
record of achieving strategic objectives and management’s assessment of the likely impact that the conflict in Ukraine
may have on financial performance, capital and liquidity for a period of 12 months from the date on which the
financial statements are authorised for issue.
Further detail regarding how our audit addressed Going concern risks is included in our Key Audit Matters table above.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the group’s or the company’s ability to continue as a going
concern for a period of at least twelve months from the date on which the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s
or the company’s ability to continue as a going concern.
In relation to the company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
250
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent
otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or
material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the
financial statements or a material misstatement of the other information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Directors’ Report, we also considered whether the disclosures required by the Companies Act 2014
(excluding the information included in the “Non Financial Statement” as defined by that Act on which we are not required
to report) have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (Ireland), the
Companies Act 2014 (CA14) and require us to also report certain opinions and matters as described below (required by
ISAs (Ireland) unless otherwise stated).
Directors’ Report
● In our opinion, based on the work undertaken in the course of the audit, the information given in the Directors’
Report (excluding the information included in the “Non Financial Statement” on which we are not required to
report) for the year ended 31 December 2021 is consistent with the financial statements and has been prepared in
accordance with the applicable legal requirements. (CA14)
● Based on our knowledge and understanding of the group and company and their environment obtained in the
course of the audit, we did not identify any material misstatements in the Directors’ Report (excluding the
information included in the “Non Financial Statement” on which we are not required to report). (CA14)
Corporate governance statement
● In our opinion, based on the work undertaken in the course of the audit of the financial statements,
− the description of the main features of the internal control and risk management systems in relation to the
financial reporting process; and
− the information required by Section 1373(2)(d) of the Companies Act 2014;
included in the Corporate Governance Statement, are consistent with the financial statements and have been
prepared in accordance with section 1373(2) of the Companies Act 2014. (CA14)
● Based on our knowledge and understanding of the company and its environment obtained in the course of the audit
of the financial statements, we have not identified material misstatements in the description of the main features of
the internal control and risk management systems in relation to the financial reporting process and the information
required by section 1373(2)(d) of the Companies Act 2014 included in the Corporate Governance Statement. (CA14)
● In our opinion, based on the work undertaken during the course of the audit of the financial statements, the
information required by section 1373(2)(a),(b),(e) and (f) of the Companies Act 2014 and regulation 6 of the
European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and groups)
Regulations 2017 is contained in the Corporate Governance Statement. (CA14)
The directors’ assessment of the prospects of the group and of the principal risks that would threaten
the solvency or liquidity of the group
As a result of the directors’ voluntary reporting on how they have applied the UK Corporate Governance Code (the
“Code”), under ISAs (Ireland) we are required to report to you if we have anything material to add or to draw attention to
regarding:
● The directors’ confirmation on page 293 of the Annual Report that they have carried out a robust assessment of the
principal risks facing the group, including those that would threaten its business model, future performance,
solvency or liquidity.
● The disclosures in the Annual Report that describe those risks and explain how they are being managed or
mitigated.
● The directors’ explanation on page 33 of the Annual Report as to how they have assessed the prospects of the group,
over what period they have done so and why they consider that period to be appropriate, and their statement as to
251
whether they have a reasonable expectation that the group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions.
Other Code provisions
As a result of the directors’ voluntary reporting on how they have applied the Code, we are required to report to you if, in
our opinion:
● The statement given by the directors on page 313 that they consider the Annual Report taken as a whole to be fair,
balanced and understandable and provides the information necessary for the members to assess the group’s and
company’s position and performance, business model and strategy is materially inconsistent with our knowledge of
the group and company obtained in the course of performing our audit.
● The section of the Annual Report on pages 310-315 describing the work of the Audit Committee does not
appropriately address matters communicated by us to the Audit Committee.
We have nothing to report in respect of this responsibility.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities set out on pages 50 and 51, the directors are
responsible for the preparation of the financial statements in accordance with the applicable framework and for being
satisfied that they give a true and fair view.
The directors are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the company or to cease operations, or have no
realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data
auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing
complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In
other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is
selected.
A further description of our responsibilities for the audit of the financial statements is located on the IAASA website at:
https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_auditors_responsibilities_for
_audit.pdf
This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance
with section 391 of the Companies Act 2014 and for no other purpose. We do not, in giving these opinions, accept or
assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it
may come save where expressly agreed by our prior consent in writing.
252
254
Company Financial Statements
2021
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Company Financial Statements - Contents
for the year ended 31 December 2021
255
Contents
Page
Company Statement of Comprehensive Income 256
Company Balance Sheet 257
Company Statement of Changes in Equity 258
Company Statement of Cash Flows 259
Notes to the Company Financial Statements 260-270
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Company Statement of Comprehensive Income
for the year ended 31 December 2021
256
Notes
2021 2020
€000 €000
Income
Income from equity instruments 8 27,500
27,500
Income from debt instruments 8 13,778
-
Total income from investments 41,278
27,500
Other income 4 6,794
3,515
Total income 48,072
31,015
Administrative and other operating expenses 5 (4,185)
(3,618)
43,887
27,397
Interest expense on loan stock 13 (14,075)
-
Finance costs (19)
(18)
Credit losses of financial instruments 8 (1,136)
-
Reversal of impairment/(impairment)
of investment in subsidiary
7 50,000
(252,000)
Profit/(loss) before tax 78,657
(224,621)
Tax 6 -
-
Profit/(loss) after tax for the year 78,657
(224,621)
Other comprehensive income (OCI)
OCI not to be reclassified in the income statement in
subsequent periods
Fair value reserve (equity instruments)
Net gains/(losses) on investments in equity instruments
measured at fair value through OCI (FVOCI)
8 27,205
(28,829)
Total OCI not to be reclassified in the income statement
in subsequent periods
27,205
(28,829)
Other comprehensive income/(loss) for the year 27,205
(28,829)
Total comprehensive income/(loss) for the year 105,862
(253,450)
The notes on pages 260 to 270 form an integral part of these Company financial statements.
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Company Statement of Changes in Equity
for the year ended 31 December 2021
258
Share
capital
(Note 11)
Share
premium
(Note 11)
Retained
earnings
(Note 12)
Financial
instruments
fair value
reserve
(Note 8)
Total equity
attributable to
the owners of
the Company
Other equity
instruments (Note
11)
Total
equity
€000 €000 €000 €000 €000 €000 €000
Balance at 1 January 2020 44,620
1,294,358
293,048
19,558 1,651,584 220,000
1,871,584
Loss after tax for the year -
-
(224,621)
- (224,621) -
(224,621)
Other comprehensive loss after tax for the year -
-
-
(28,829) (28,829) -
(28,829)
Total comprehensive loss after tax for the year -
-
(224,621)
(28,829) (253,450) -
(253,450)
Payment of coupon to AT1 holders (Note 11) -
-
(27,500)
- (27,500) -
(27,500)
Reduction of share premium -
(700,000)
700,000
- - -
-
Balance at 31 December 2020/1 January 2021 44,620
594,358
740,927
(9,271) 1,370,634 220,000
1,590,634
Profit after tax for the year -
-
78,657
- 78,657 -
78,657
Other comprehensive profit after tax for the year -
-
-
27,205 27,205 -
27,205
Total comprehensive profit after tax for the year -
-
78,657
27,205 105,862 -
105,862
Payment of coupon to AT1 holders (Note 11) -
-
(27,500)
- (27,500) -
(27,500)
Special defence contribution on deemed dividend
distribution
-
-
(82)
- (82) -
(82)
Total transactions with owners
-
-
(27,582)
- (27,582) -
(27,582)
Balance at 31 December 2021 44,620
594,358
792,002
17,934 1,448,914 220,000
1,668,914
The notes on pages 260 to 270 form an integral part of these Company financial statements.
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Company Statement of Cash Flows
for the year ended 31 December 2021
259
Notes
2021 2020
€000 €000
Cash flows from operating activities
Profit/(loss) before tax
78,657
(224,621)
Adjustments for:
Income from equity instruments 8 (27,500)
(27,500)
Income from debt instruments 8 (13,778)
-
Credit losses of other financial instruments 8 1,136
-
Interest expense on loan stock 13 14,075
-
(Reversal of impairment)/impairment of investment in
subsidiary
7 (50,000)
252,000
2,590
(121)
Changes in working capital:
Other assets (10) 328
Receivables from related parties 10 (33) (302)
Other payables 14 (32) 230
Payables to related parties - (130)
Tax paid (82) -
Net cash from operating activities 2,433 5
Cash flows from investing activities
Income received from equity instruments 8 27,500
27,500
Purchase of debt instruments 8 (300,000)
-
Income received from debt instruments 9,966
-
Net cash (used)/from investing activities
(262,534)
27,500
Cash flows from financing activities
Payment of AT1 coupon 11 (27,500) (27,500)
Payment of interest on loan stock (9,966) -
Net proceeds from issuance of loan stock (net of costs) 13 297,552 -
Net cash from/(used in) financing activities
260,086 (27,500)
Net (decrease)/increase in cash and cash equivalents
(15)
5
Cash and cash equivalents:
At beginning of the year
(127)
(132)
At end of the year 9 (142)
(127)
The notes on pages 260 to 270 form an integral part of these Company financial statements.
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
260
1. Corporate information
Bank of Cyprus Holdings Public Limited Company (the ‘Company’) was incorporated in Ireland on 11 July 2016,
as a public limited company under company number 585903 in accordance with the provisions of the
Companies Act 2014 of Ireland (Companies Act 2014). Its registered office is 10 Earlsfort Terrace, Dublin 2,
D02 T380, Ireland.
The Company owns 100% of the share capital of Bank of Cyprus Public Company Limited (BOC PCL) whose
principal activities, together with BOC PCL’s subdiairies, involve the provision of banking, financial services,
insurance services and management and disposal of property predominately acquired in exchange of debt. The
Board of Directors does not expect that the Company’s activities will change in the foreseeable future. The
Company is tax resident in Cyprus.
The Bank of Cyprus Holdings Group (the ‘Group’) comprises the Company, its subsidiary BOC PCL and the
subsidiaries of BOC PCL.
The shares of the Company are listed and trading on the London Stock Exchange (LSE) and the Cyprus Stock
Exchange (CSE).
The Company financial statements are available at the Company’s registered office (at 10 Earlsfort Terrace,
Dublin 2, D02 T380, Ireland) and on the Group’s website http://www.bankofcyprus.com (Group/Investor
Relations/Financial Results).
Company Financial statements
The Company financial statements for the year ended 31 December 2021 were authorised for issue by a
resolution of the Board of Directors on 29 March 2022. The Company also issues consolidated financial
statements which are available at the Company’s registered office and on the Group’s website.
The Company financial statements are originally issued in English. The Greek translation of the Company
financial statements will be available on the Group’s website from 30 March 2022. In case of a difference or
inconsistency between the English document and the Greek document, the English document prevails.
2. Summary of significant accounting policies
2.1 Basis of preparation
The Company financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union (EU) and with those parts of the Companies Act 2014
applicable to companies reporting under IFRSs.
Presentation of the Company financial statements
The Company financial statements are presented in Euro (€) and all amounts are rounded to the nearest
thousand, except where otherwise indicated. A comma is used to separate thousands and a dot is used to
separate decimals.
2.2 Going concern
The going concern assessment of the Company is consistent with the going concern assessment of the Group,
which is presented in Note 3 of the consolidated financial statements of the Group for the year ended 31
December 2021.
2.3 Changes in accounting policies and disclosures
The accounting policies adopted in preparing the financial statements of the Company are consistent with those
adopted in preparing the consolidated financial statements of the Group, a summary of which is presented in
Note 2 of the consolidated financial statements of the Group for the year ended 31 December 2021.
In addition, the following policies are applied:
Investment in subsidiary
The investment in subsidiary is measured at cost less impairment.
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
261
2. Summary of significant accounting policies (continued)
2.3 Changes in accounting policies and disclosures (continued)
Investment in subsidiary (continued)
The Company periodically evaluates the recoverability of the investment in subsidiary whenever indicators of
impairment are present. Indicators of impairment include such items as declines in revenues, earnings or cash
flows of the subsidiary or material adverse changes in the economic or political stability of the country in which
the subsidiary operates, which may indicate that the carrying amount of the subsidiary is not recoverable. If
facts and circumstances indicate that the investment in subsidiary may be impaired, the Company determines
the recoverable amount of the investment in subsidiary as the higher of its fair value less costs to sell and its
value-in-use. Value-in-use is calculated by estimating the future cash inflows and outflows to be derived from
continuing use of the asset and applying the appropriate discount rate.
If the recoverable amount is lower than the carrying value of the subsidiary, an impairment loss is recognised
equal to the excess of the carrying value over the recoverable amount. In the cases where the recoverable
amount is higher than the carrying value of the subsidiary, that increase is recognised by the Company as a
reversal of the impairment loss recognised in prior periods, to the extent that the increased carrying amount
attributable to the reversal of the impairment does not exceed the carrying amount that would have been
determined had no impairment loss been recognised in prior years.
Further details on the determination of the recoverable amount of the investment in subsidiary are disclosed in
Note 7.
The accounting policies adopted are consistent with those of the previous financial year, except for the adoption
of new and amended standards and interpretations as explained in Note 2.2 of the consolidated financial
statements of the Group for the year ended 31 December 2021, which did not have an effect on the Company
financial statements.
3. Significant accounting estimates, judgements and assumptions
The preparation of the Company financial statements requires the Company’s Board of Directors and
management to make judgements, estimates and assumptions that can have a material impact on the amounts
recognised in the Company financial statements and the accompanying disclosures, as well as the disclosures of
contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require
a material adjustment to the carrying amount of assets or liabilities affected in future periods. The Board of
Directors has made the following judgements and estimations:
Fair value of investments
The best evidence of fair value 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
Company use only observable market data and so the reliability of the fair value measurement is relatively
high.
However, certain financial instruments are valued on the basis of valuation techniques that feature one or more
significant inputs that are not observable. Valuation techniques that rely on non-observable inputs require a
higher level of management judgement to calculate a fair value than those based wholly on observable inputs.
Valuation techniques used to calculate fair values include comparisons with similar financial instruments for
which market observable prices exist, discounted cash flow analysis and other valuation techniques commonly
used by market participants. Valuation techniques incorporate assumptions that other market participants
would use in their valuations, including assumptions about interest rate yield curves, exchange rates, volatilities
and default rates. When valuing instruments by reference to comparable instruments, management takes into
account the maturity, structure and rating of the instrument with which the position held is being compared.
The Company only uses models with unobservable inputs for the valuation of certain unquoted equity
investments. In these cases, estimates are made to reflect uncertainties in fair values resulting from a lack of
market data inputs, for example, as a result of illiquidity in the market. Inputs into valuations based on
unobservable data are inherently uncertain because there is little or no current market data available from
which to determine the level at which an arm’s length transaction would occur under normal business
conditions. Unobservable inputs are determined based on the best information available.
Further details on the Company’s fair value of assets and liabilities are disclosed in Note 15.
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
262
3. Significant accounting estimates, judgements and assumptions (continued)
Impairment review of its subsidiary undertaking
The Company carries its investment in its subsidiary undertaking at cost and reviews whether there is any
indication of impairment at each reporting date. Impairment testing involves comparing the carrying value of
the investment to its recoverable amount. The recoverable amount is the higher of the investment’s fair value
or its value-in-use. If the recoverable amount is higher than the carrying value of the investment, that increase
is recognised by the Company as a reversal of the impairment loss recognised in prior periods as explained in
Note 2.3. Further details on the Company’s key estimates for the recoverable amount of the investment in
subsidiary are disclosed in Note 7.
4. Other income
2021 2020
€000 €000
Management consultancy services (Note 16 (ii)) 1,310
1,138
Reimbursement of expenses and fees (Note 16 (ii)) 5,484
2,377
6,794
3,515
5. Administrative and other operating expenses
2021 2020
€000 €000
Directors’ fees (Note 16 (iv)) 1,250
1,089
Insurance 1,805
1,544
Consultancy and other professional fees 668
410
Stock exchange fees 287
283
Audit fees 243
231
Other expenses (68)
61
4,185
3,618
Audit fees above include fees to the statutory auditor (PwC Ireland) of €30 thousand (excluding VAT) for the
audit of the Company financial statements (2020: €30 thousand excluding VAT) and €100 thousand (excluding
VAT) for the audit of the Company consolidated financial statements (2020: €100 thousand excluding VAT).
The consultancy and other professional fees above do not include any fees charged by the Company’s statutory
auditors.
The Company did not employ any staff during the years 2021 and 2020.
6. Tax
The reconciliation between the income tax expense and the profit/(loss) before tax as estimated using the
current income tax rates is set out below:
2021 2020
€000 €000
Profit/(loss) before tax 78,657
(224,621)
Income tax at the normal tax rates in Cyprus 9,832
(28,078)
Income tax effect of:
- expenses not deductible for income tax purposes 541
31,830
- income not subject to income tax (10,373)
(3,752)
-
-
Income tax in Cyprus is calculated at the rate of 12.5% on taxable income (2020: 12.5%).
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
263
7. Investment in subsidiary
2021 2020
€000 €000
1 January 1,380,000
1,632,000
Reversal of impairment/(impairment) of investment in
subsidiary
50,000
(252,000)
31 December 1,430,000
1,380,000
The investment in subsidiary represents a 100% investment in the share capital of BOC PCL, a company
registered in Cyprus and its activities are presented in Note 1. Its registered office is at 51 Stassinos Street,
2002, Strovolos, Nicosia, Cyprus.
As at 31 December 2021, the Company performed an assessment of the carrying value of the investment in
subsidiary resulting in a partial reversal of previously recognised impairment loss of €50,000 thousand (2020:
impairment charge of €252,000 thousand).
The assessment involved the determination of the recoverable amount of the investment in subsidiary as the
higher of its fair value less costs to sell and the value-in-use (VIU). While the recoverable amount based on the
VIU exceeds market capitalisation at 31 December 2021, the depressed share price is the result of the overall
subdued banking environment in which the entity currently operates, along with various entity-specific factors
that affect the liquidity of the shares. Compared with 31 December 2020, the VIU exceeded the carrying value
by €50,000 thousand. The increase in VIU was principally due to the impact from BOC PCL’s actual
performance, which was better than earlier estimates, revisions to management's best estimates of BOC PCL’s
future earnings in the short to medium term, and the net impact of revisions to certain long-term assumptions.
In future periods, the VIU may increase or decrease depending on the effect of changes to model inputs. The
main model inputs are described below and are based on factors observed at year-end. The factors that could
result in a change in the VIU and an impairment include a short-term underperformance by BOC PCL, a change
in regulatory capital requirements or an increase in uncertainty regarding the macroeconomic conditions and
future performance of BOC PCL’s resulting in a lower forecast of future asset growth or profitability. An increase
in the discount rate could also result in a reduction of VIU and an impairment.
At the point where the carrying value exceeds the VIU, impairment would be recognised.
To determine the VIU of the investment in subsidiary, the future cash flows to be derived from continuing use
of the asset were estimated with the use of a dividend discount model, which was based on the financial plan
approved by the Board up to 2025 and projections beyond 2025 until 2029 were extrapolated. The key
assumptions and factors taken into consideration include:
- Forecasted net lending growth, forecasted increase in non-interest income which is based on historical
experience of the Group, strategic priorities and direction and extrapolated in the later years considering the
macroeconomic forecasts as well as key KPIs of the Group.
- Impairment charge based on historical experience and forecasted general macroeconomic outlook. NPE
expected coverage ratio is also considered.
- Operating cost is impacted by cost saving initiatives and envisaged operating model. For period beyond
2025 this takes into consideration projected macroeconomic variables such as CPI and maintain a
reasonable cost to income ratio.
- Deposits projections and issuances/redemptions based on the liquidity funding needs of the Groups as well
as projected MREL requirements.
- Capital requirements: This was based on the current minimum regulatory requirements, incorporating
known changes such as the phasing-in of the O-SII buffer after which has assumed to remain the same
throughout the period, and incorporating an additional capital cushion over the minimum capital
requirements.
The assumptions are based on both internal and external information including the Group’s actual and historic
performance, the key objectives of the Group’s strategy as well as the macroeconomic environment in Cyprus.
From year 2030 onwards, a terminal growth rate has been assumed in the valuation. Growth rate is determined
by reference to long-term economic growth, taking into consideration both Cyprus GDP growth projections and
brokers consensus. A long-term growth rate of 2% (2020:2%) was used, and does not exceed the relevant
long-term average growth rate of the economy in which it operates.
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
264
7. Investment in subsidiary (continued)
An appropriate discount rate has been applied which reflects the estimated cost of equity of 11.5% (2020:
11.5%) determined on the basis of CAPM model and brokers’ consensus, which take into consideration various
risks.
The impact of changes in the growth rate and the discount rate by reference to the carrying value of the
investment has been assessed by the Management:
- An increase of 1% in the discount rate would result in an additional €173,000 thousand (2020: €184,000
thousand) impairment;
- A decrease of 1% in the discount rate would result in an additional reversal of impairment by €217,000
thousand (2020: €231,000 thousand);
- An increase of 1% in the long term growth rate would result in an additional reversal of impairment by
€29,000 thousand (2020: €31,000 thousand);
- A decrease of 1% in the long term growth rate would result in an additional €23,000 thousand (2020:
€25,000 thousand) impairment;
8. Investments
2021 2020
€000 €000
Equity instruments at fair value through other comprehensive
income (Note 16 (vi))
237,934
210,729
Debt instruments measured at amortised cost (Note 16 (vii)) 302,676
-
540,610
210,729
Equity instruments
In December 2018, the Company issued €220,000 thousand of Fixed Rate Reset Perpetual Additional Tier 1
Capital Securities (AT1) (Note 11). On the same date, the Company and BOC PCL entered into an agreement
pursuant to which the Company on-lent to BOC PCL the entire €220,000 thousand proceeds of the issue of the
AT1 (the loan, the ‘AT1 Loan’) on terms substantially identical to the terms and conditions of the AT1 issued by
the Company. The AT1 Loan constitutes an unsecured and subordinated obligation of BOC PCL. The interest is
at 12.50% and is payable semi-annually. BOC PCL may elect to cancel any interest payment for an unlimited
period, and on a non-cumulative basis, whereas it mandatorily cancels interest payment under certain
circumstances. The AT1 Loan is perpetual and has no fixed date for redemption but can be redeemed (in whole
but not in part) at BOC PCL's option on the fifth anniversary of the issue date and each subsequent fifth
anniversary. AT1 Loan has been classified as equity instruments at fair value through other comprehensive
income. During the year ended 31 December 2021 an income of €27,500 thousand (2020: €27,500 thousand)
has been recognised in profit and loss in respect of these investments.
The fair value of equity instruments held by the Company is determined using models for which all inputs that
have a significant effect on fair value are market observable. Equity instruments are financial instruments
whose fair value is categorised as Level 2 instruments in fair value hierarchy.
There were no transfers in and out of Level 2 during 2021 and 2020.
During the year ended 31 December 2021 a gain of €27,205 thousand (2020: loss of €28,829 thousand) has
been recognised in other comprehensive income in respect of the fair value measurement of these investments.
Debt instruments
In April 2021, the Company issued €300,000 thousand unsecured and subordinated Tier 2 Capital Notes (the
‘Notes’) (Note 13) and immediately after, the Company and BOC PCL entered into an agreement pursuant to
which the Company on-lent to BOC PCL the entire €300,000 thousand proceeds of the issue of the Notes (the
‘T2 Loan’) on terms substantially identical to the terms and conditions of the Notes issued by the Company. The
interest is 6.625% per annum payable annually in arrears and resettable on 23 October 2026 at the then
prevailing 5-year swap rate plus a margin of 6.902% per annum up to 23 October 2031, payable annually. The
note matures on 23 October 2031. BOC PCL has the option to redeem the T2 Loan early on any day during the
six-month period from 23 April 2026 to 23 October 2026. The T2 Loan has been classified as a debt instrument
measured at amortised cost. During the year ended 31 December 2021 an income of €13,778 thousand (2020:
nil) has been recognised in profit and loss in respect of this instrument. As at 31 December 2021 the T2 Loan is
classified as Stage 1 for ECL purposes and amount of €1,136 thousand that relates to 12-months ECL has been
recognised as credit losses for the year ended 31 December 2021.
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
265
9. Bank balances
Bank balances include the following for the purpose of the statement of cash flows:
2021 2020
€000 €000
Bank overdrafts (Note 16 (v)) 142
127
10. Receivables from related parties
2021 2020
€000 €000
Current assets
Receivables from related parties (Note 16 (v)) 335
302
The above balances represent the maximum exposure to credit risk at the balance sheet date.
11. Share capital
2021 2020
Number of
shares
(thousand)
€000
Number of
shares
(thousand)
€000
Authorised
Ordinary shares of €0.10
each
10,000,000
1,000,000
10,000,000
1,000,000
Issued and fully paid
Ordinary shares of €0.10
each
446,200
44,620
446,200
44,620
The Company did not provide financial assistance permitted by section 82 of the Companies Act 2014 of Ireland
for the purchase of its shares.
Authorised and issued share capital
All issued shares are fully paid and carry the same rights.
There were no changes to the authorised or issued share capital during the years ended 31 December 2021 and
2020.
Share premium reserve
2021
There were no changes to the share premium reserve during the year ended 31 December 2021.
2020
The Company, following relevant resolution of its shareholders at the May 2020 Annual General Meeting and
subsequent approval by the ECB in September 2020 and by the Irish High Court (pursuant to section 85(1) of
the Companies Act 2014 of Ireland), implemented a capital reduction process in November 2020, which
resulted in the reclassification of €700 million of the Company’s share premium balance as distributable
reserves (retained earnings).
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
266
11. Share capital (continued)
Share-based payments-share options
Following the incorporation of the Company and its introduction as the new holding company of the Group in
January 2017, the Long Term Incentive Plan was replaced by the Share Option Plan which operates at the level
of the Company. The Share Option Plan is identical to the Long Term Incentive Plan except that the number of
shares in the Company to be issued pursuant to an exercise of options under the Share Option Plan should not
exceed 8,922,945 ordinary shares of a nominal value of €0.10 each and the exercise price was set at €5.00 per
share. The term of the options was also extended to between 4-10 years after the grant date.
No share options were granted since the date of replacement of the Long Term Incentive Plan by the Share
Option Plan at the level of the Company. Any shares related to the Share Option Plan carry rights with regards
to control of the Company that are only exercisable directly by the employee.
Other equity instruments
2021 2020
€000 €000
Reset Perpetual Additional Tier 1 Capital Securities 220,000
220,000
In December 2018 the Company issued €220 million Subordinated Fixed Rate Reset Perpetual Additional Tier 1
Capital Securities (AT1). AT1 constitutes an unsecured and subordinated obligation of the Company. The
coupon is at 12.50% and is payable semi-annually. During the year ended 31 December 2021 two coupon
payments to AT1 holders were made of a total amount of €27,500 thousand (2020: €27,500 thousand) and
have been recognised in retained earnings. The Company may elect to cancel any coupon payment for an
unlimited period, on a non-cumulative basis, whereas it mandatorily cancels coupon payment under certain
circumstances. AT1 is perpetual and has no fixed date for redemption but can be redeemed (in whole but not
in part) at the Company's option on the fifth anniversary of the issue date and each subsequent fifth
anniversary subject to the prior approval of the regulator. AT1 is listed on the Luxembourg Stock Exchange's
Euro Multilateral Trading Facility (MTF) market.
12. Retained earnings
For the purpose of dividend distribution, retained earnings determined at Company level, are the only
distributable reserve.
Companies which do not distribute 70% of their profits after tax, as defined by the Special Contribution for the
Defence of the Republic Law, by the end of the two years after the end of the year of assessment to which the
profits refer, will be deemed to have distributed this amount as dividend. Special contribution for defence at the
rate of 17% will be payable on such deemed dividend to the extent that the shareholders for deemed dividend
distribution purposes at the end of the period of two years from the end of the year of assessment to which the
profits refer, are Cyprus tax residents and domiciled. From 1 March 2019, the deemed dividend distribution is
subject to a 1.70% contribution to the National Health System increased to 2.65% from 1 March 2020, with the
exception of April 2020 until June 2020 when the 1.70% rate was applicable.
The amount of this deemed dividend distribution is reduced by any actual dividend paid out of the profits of the
relevant year.
This special defence contribution is paid by the Company on account of the shareholders. During 2021 a special
defence contribution on deemed dividend distribution of €82 thousand (2020: €1 thousand) was paid by the
Company.
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
267
13. Loan stock
Contractual
interest rate
2021 2020
€000 €000 €000 €000
Nominal
value
Carrying
value
Nominal
value
Carrying
value
Subordinated Tier 2
Capital Note – April
2021
6.625% up to
23 October
2026
300,000
301,661
-
-
300,000
301,661
-
-
Subordinated Tier 2 Capital Note - April 2021
In April 2021, BOCH issued a €300 million unsecured and subordinated Tier 2 Capital Note under the EMTN
Programme. The note was priced at par with a coupon of 6.625% per annum payable annually in arrears and
resettable on 23 October 2026 at the then prevailing 5-year swap rate plus a margin of 6.902% per annum up
to 23 October 2031, payable annually. The note matures on 23 October 2031. BOCH has the option to redeem
the note early on any day during the six-month period from 23 April 2026 to 23 October 2026, subject to
applicable regulatory consents. The note is listed on the Luxembourg Stock Exchange’s Euro MTF market.
During the year ended 31 December 2021 an amount of €14,075 thousand has been recognised as interest
expense on this loan stock.
14. Other payables
2021 2020
€000 €000
Accruals 268
245
VAT payable 10
65
Corporation tax payable 5
5
283
315
Other payables are due within 12 months from the balance sheet date.
15. Fair value measurement
The fair value of the financial assets and financial liabilities approximates their carrying value as at 31
December 2021 and 2020, except for the investments in debt instruments measured at amortised cost (Note 8)
and the loan stock (Note 13), whose fair value is disclosed below:
2021 2020
Fair value
measurement
hierarchy
Carrying
value
Fair
value
Fair value
measurement
hierarchy
Carrying
value
Fair
value
€000 €000
€000 €000
Financial assets
Debt instruments
measured at amortised
cost (Note 8)
Level 2 302,676
315,463
-
-
-
Financial liabilities
Loan stock (Note 13) Level 1 301,661
315,463
-
-
-
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
268
16. Related party transactions
The following transactions were carried out with related parties:
(i) Income from investments
2021 2020
€000 €000
Income from investments
Equity instruments
BOC PCL 27,500
27,500
Debt instruments
BOC PCL 13,778
-
(ii) Other income
2021 2020
€000 €000
Management consultancy services 1,310
1,138
Reimbursement of expenses and fees 5,484
2,377
6,794
3,515
The above transactions were carried out between the Company and its subsidiary BOC PCL on an arm’s length
basis.
(iii) Administrative and other expenses
2021 2020
€000 €000
Consultancy and other professional fees 16
11
The above consultancy and other professional fees were carried out between the Company and its subsidiary
BOC PCL on an arm’s length basis.
(iv) Directors’ remuneration
The total directors’ fees amount to €1,250 thousand (2020: €1,089 thousand). These were reimbursed by BOC
PCL and included in other income above.
Fees are included for the period that Directors serve as members of the Board of Directors.
Non-executive Directors remuneration
2021 2020
€000 €000
Efstratios-Georgios Arapoglou 215
154
Arne Berggren 113
112
Maksim Goldman 113
117
Ioannis Zographakis 198
207
Michael Heger 113
117
Lyn Grobler 154
135
Paula Hadjisotiriou 119
110
Maria Philippou 119
102
Nicos Sofianos (appointed on 26 February 2021 – following
ECB approval)
100
-
Anat Bar-Gera (resigned on 26 May 2020) -
35
Constantine Iordanou (appointed on 29 November 2021
following ECB approval)
6
-
1,250
1,089
The fees of the non-executive Directors include fees as members of the Board of Directors of the Company, as
well as of members of the committees of the Board of Directors.
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
269
16. Related party transactions (continued)
(v) Year-end balances
2021 2020
€000 €000
Receivables from related parties
BOC PCL 335
302
Bank overdrafts
BOC PCL 142
127
The receivable from related parties as at 31 December 2021 and 2020 related to income outstanding from
management consultancy services and reimbursement of expenses and fees.
There were no other significant transactions with related parties of the Company and no information to be
disclosed under section 307 of the Companies Act 2014 of Ireland for the years 2021 and 2020.
(vi) AT1 Capital Securities
In December 2018 the Company and BOC PCL entered into an agreement pursuant to which the Company on-
lent to BOC PCL the entire €220,000 thousand proceeds of the issue of the AT1. Further details are disclosed in
Note 8.
(vii) Subordinated Tier 2 Capital Note
In April 2021 the Company and BOC PCL entered into another agreement pursuant to which the Company on-
lent to BOC PCL the entire €300,000 thousand proceeds of the issue of the Tier 2 loan stock. Further details are
disclosed in Note 8.
17. Dividend
Based on the 2019 SREP decision, which remained in effect during 2021 following relevant communication by
the ECB, the Company is under a regulatory prohibition for equity dividend distribution. This prohibition does
not apply if the distributions are made via the issuance of new ordinary shares to the shareholders which are
eligible as Common Equity Tier 1 capital. No dividends were declared or paid during years 2021 and 2020.
Following the 2021 SREP Decision the Company remains under a regulatory prohibition for equity dividend
distribution.
No prohibition applies to the payment of coupons on any AT1 capital instruments issued by the Company.
18. Financial risk management
The Company is exposed to risks the most significant of which are the liquidity risk and market risk.
18.1 Liquidity risk
Liquidity risk refers to probable losses that the Company may face, in case of repayment difficulties to its cash
flow obligations. The level of operational costs is low and the Company enjoys adequate liquidity.
18.2 Market risk
Market risk is the risk of loss from adverse changes in market prices namely from changes security prices. The
Market Risk department is responsible for monitoring the risk resulting from such changes with the objective to
minimise the impact on earnings and capital. The department also monitors liquidity risk and credit risk with
counterparties and countries. It is also responsible for monitoring compliance with the various market risk
policies and procedures.
Price risk
Equity securities price risk
The risk of loss from changes in the price of equity securities arises when there is an unfavourable change in
the prices of equity securities held by the Company as investments.
Investments in equities are outside the Company’s risk appetite.
Changes in the prices of equity securities that are classified as FVOCI affect the equity of the Company.
BANK OF CYPRUS HOLDINGS PUBLIC LIMITED COMPANY
Notes to the Company Financial Statements
270
18. Financial risk management (continued)
18.2 Market risk (continued)
Price risk (continued)
Equity securities price risk (continued)
The table below shows the impact on the equity of the Company from a change in the price of the equity
instruments held, as a result of reasonably possible changes based on a Monte Carlo conditional value-at-risk
(cVaR) analysis performed on the underlying assets for the year ended 31 December 2021, and based on a
change in the price of the equity instruments held, as a result of reasonably possible changes in the relevant
stock exchange indices for the year ended 31 December 2020.
2021
Change in index Impact on equity
% €000
Other stock exchanges and unlisted +5.6 13,324
Other stock exchanges and unlisted -5.6 (13,324)
2020
Other stock exchanges and unlisted +15 31,609
Other stock exchanges and unlisted -15 (31,609)
19. Capital management
The capital management of the Company is consistent with the capital management of the Group as presented
in Note 49 of the consolidated financial statements of the Group for the year ended 31 December 2021.
20. Events after the reporting date
There were no material events which occurred after the reporting date other than as disclosed in Note 54 of the
consolidated financial statements of the Group for the year ended 31 December 2021.
271
Annual Corporate Governance Report
2021
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
272
Introduction
Part A
Sound corporate governance and corporate administration guarantee a dynamic and effective communication
between the Board, the management and the shareholders and consequently the successful implementation of
any institution’s strategy. The Board of Directors (the ‘Board’) of the Bank of Cyprus Holdings Plc (the
‘Company’) views governance as the way it makes decisions and provides oversight in order to promote the
Company’s success for the long-term benefit of its shareholders and all other stakeholders. It aims to ensure
on an ongoing basis that the Company is a modern, competitive and sustainable organisation and promotes
the highest standards of integrity, transparency and accountability.
It has therefore been the policy of the Company to fully adhere to the Cyprus Stock Exchange Code (‘CSE
Code’) and comply with all applicable corporate governance requirements. All provisions of the CSE Code have
been incorporated in the Company’s Corporate Governance Policy and all its principles are fully implemented.
The established governance framework provides for systems of checks and controls required to drive
accountability and effective decision making across the Company, together with its subsidiaries (the ‘Group’),
with appropriate policies and practices in place to ensure that the Board and its committees operate
effectively. A key objective of the governance framework of the Group is to ensure compliance with applicable
corporate governance requirements which in 2021 comprised of:
The Central Bank of Cyprus (‘CBC’) Directive on Internal Governance of Credit Institutions (the ‘CBC
Directive on Internal Governance’) (available on www.centralbank.cy);
The European Banking Authority (‘EBA’) Guidelines on internal governance under Directive 2013/36/EU;
The CSE Code (5
th
revised edition – January 2019) (available on www.cse.com.cy);
The UK Corporate Governance Code 2018 published by the Financial Reporting Council in the UK (the ‘UK
Code’ which is available on www.frc.org.uk);
The Joint European Securities and Markets Authority (‘ESMA’) and EBA Guidelines on the assessment of the
suitability of members of the management body (‘The Joint Guidelines on Suitability’);
The CBC Directive on the assessment of the suitability of members of the management body and Key
Function Holders (the ‘CBC Directive on Suitability’) (available on www.centralbank.cy).
Corporate governance principles are constantly evolving, and the Board is committed to monitoring and
reviewing the Company’s corporate governance framework accordingly through regular reviews and challenge.
Part B
The Company confirms that it has complied with the provisions of the CSE Code throughout 2021. The
Company applies the provisions of the Code all through the Group. As at the date of this Report, all material
subsidiary companies maintain an audit committee and a risk committee. The Report explains how the
Company has applied the provisions of the CSE Code through year 2021. The Remuneration Policy Report
follows on page 324.
The Directors further consider that the Company has complied with the provisions of the UK Code, other than
as set out herein:
The announcement of the voting results at the 2021 Annual General Meeting (‘AGM’) did not state as per
provision 4 that the Board would be taking follow up action of the resolution which was voted against by
more than 20% of shareholders, nor was there an update six months later of the actions taken to
understand the viewpoint of the shareholders. However, discussions with dissenting shareholders did take
place and the result, following the nomination by several investors, was the appointment of Mr. Iordanou to
the Board. An update is included in this report in section 1.3 on page 287.
The composition of the Human Resources & Remuneration Committee and the Risk Committee in 2021 did
not meet provision 32 of the UK Code. By virtue of the CBC Directive on Suitability Mr. Goldman is
considered as a non-independent non-executive director even though the Board believes that Mr. Goldman
demonstrates independent judgement and challenge.
Due to certain remuneration restrictions (such as no granting of variable pay ) in place by the regulator,
the Human Resources & Remuneration Committee and the Board are restricted in their ability to fully
comply with provisions 35, 36,37 and 38.
No engagement with the workforce has taken place to explain how executive remuneration aligns with
wider company remuneration as per provision 41.
The current status of pension arrangements is considered to be fair in light of the remuneration
restrictions.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
273
Introduction (continued)
Part B (continued)
The narrative that follows also covers how the Company has applied the principles, provisions and disclosure
requirements set out in the UK Code.
The Board considers that the Group’s governance arrangements are robust and include a clear organisational
structure with well defined, transparent and consistent lines of responsibility which support the maintenance of
a robust control environment. These governance arrangements also include consistent authority limits,
reporting mechanisms to higher levels of management and the Board, as well as effective processes through
which to identify, manage, monitor and report risks to which the Group is or might be exposed.
The Group has appropriate internal control mechanisms including sound administrative and accounting
procedures, Information Technology (‘IT’) systems and controls.
In accordance with section 225 of the Irish Companies Act 2014, the Directors acknowledge that they are
responsible for securing the Company’s compliance with its relevant obligations (as defined in section 225(1)).
The Directors confirm that a compliance statement has been drawn up setting out the Company’s policies and
that appropriate arrangements and structures have been put in place that are, in the Directors’ opinion,
designed to secure material compliance with the relevant obligations. The Board continually monitors and
reviews internally, at least once a year, its governance framework and that of the Group’s subsidiary
companies (where applicable) through effective oversight.
1. Board of Directors
The Board derives its authority to act from the Articles of Association of the Company and the prevailing
companies, stock exchange and banking laws, the directives of the CBC, as well as the CSE and UK Codes.
The role of the Board and its committees is well described and analysed in the Board Manual that is annually
reviewed and incorporates all responsibilities that emanate from the regulatory framework and best practices.
The Company is the sole shareholder of Bank of Cyprus PCL (‘BOC PCL’ or ‘the Bank’). A common board and
committee structure applies, with the same directors sitting on the Board of Directors of the Company and on
the Board of Directors of BOC PCL and on the committees of each of the two Boards.
The Board has delegated authority to committees of the Board to support its oversight of risk and control. The
committee terms of reference are reviewed annually by the relevant committees and by the Board and are
available on the Group’s website www.bankofcyprus.com.cy/group or by request to the Company Secretary.
Appropriate cross-membership of key Board committees, including between the Audit Committee (‘AC’) and
the Risk Committee (‘RC’) and Human Resources and Remuneration Committee (‘HRRC’) and the Risk
Committee, is ensured. The Nominations and Corporate Governance Committee (‘NCGC’) reviews the
composition and purpose of the Board committees annually on behalf of the Board. Details of these
committees are set out in section 5 of this report.
The minutes of all meetings of Board committees are circulated to all directors for information and are
formally noted by the Board. Papers for all Board committee meetings are also made available to all directors,
irrespective of membership. Where there might be a conflict of interest or issues of personal confidentiality,
circulation of minutes and papers is restricted. The chairperson of each committee reports on matters
discussed during committee meetings to the subsequent scheduled meeting of the Board.
1.1 The Role of the Board
The Board of Directors is collectively responsible for the long-term success of the Group, and is committed to
effective leadership which contributes to wider society. The Board’s role is to promote the Group’s vision,
values, culture and behaviour, within a framework of prudent and effective controls, which enables risk to be
identified, assessed, measured and managed. The Board approves the Group Risk Framework on an annual
basis and receives regular updates on the Group’s risk environment and exposure to the Group’s material risk
types. Further information on risk management and the Board’s role in the risk governance of the Group is set
out in section 5.4 of this report on page 316.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
274
1. Board of Directors (continued)
1.1 The Role of the Board (continued)
The Board is responsible for ensuring that management maintains an adequate and effective internal
governance framework and internal control system, which includes a clear organisational structure and the
smooth operation of independent risk management, regulatory compliance, internal control and ICT and
security risk management functions with adequate powers and resources for the performance of their duties.
Furthermore, the Board has the responsibility to present a fair, balanced and understandable assessment of
the Company’s position and prospects, including in relation to the annual and interim financial statements and
other price-sensitive public reports and reports required by regulators and by law.
The Board sets the Group’s strategic objectives and risk appetite to support the strategy; integrates
sustainability into the way business is conducted; ensures that the necessary financial and human resources
are in place for the Group to meet its objectives; ensures that the Group’s purpose, values, strategy and
culture are all aligned and reviews management performance in that regard. The Board also ensures that its
obligations towards its shareholders and other stakeholders are understood and met. The Board recognises
the need to be adaptable and flexible to respond to changing circumstances and emerging business priorities,
whilst ensuring the continuous monitoring and oversight of core issues.
The Board is the decision-making body for all matters of importance because of their strategic, financial or
reputational implications or consequences. A formal schedule of matters reserved for approval by the Board
ensures that control of these key decisions is maintained by the Board. The schedule of matters reserved for
the Board is reviewed at least annually to ensure that it remains relevant and to reflect any enhancements
required under evolving corporate governance requirements and industry best practice. A full schedule of
matters reserved for the Board can be found at www.bankofcyprus.com.cy/group.
Moreover, the Board is responsible for endorsing the appointment of individuals who may have a material
impact on the risk profile of the Group. Their appropriateness for the role is monitored on an ongoing basis.
The removal from office of the head of a ‘control function’ as defined in the CBC Directive on Internal
Governance, is also subject to Board approval.
Stakeholders
Effective governance facilitates the delivery of the Company’s Purpose and strategy, particularly in challenging
times. The Board is committed, through the Group’s governance model, to driving purpose-led decision-
making and to delivering accountability to its stakeholders. Throughout the COVID-19 pandemic, the Board
has focused on protecting the health and wellbeing of the workforce and supporting the Group customers,
clients and other stakeholders, while ensuring that the Bank remains secure and resilient, both financially and
operationally.
The purpose of the Bank of Cyprus is to continuously support the development of the Cyprus economy and
society by going beyond banking; to deliver stakeholder value through responsible operations, sustainable
products and innovative services by remaining a strong driving force of sustainable development in the
country. Its mission is to support its customers through their daily needs and in the most important moments
of their lives. It invests resources and effort to ensure that the Group’s services are provided by leading
professionals at the cutting edge of technology with ethics and integrity.
Good governance generates mutual trust and engagement between the Company and its stakeholders.
Responding to the concerns of stakeholders is a key element of the Group’s corporate responsibility and
transparency projects and initiatives. The Group has identified, inter alia, the following key stakeholders:
regulators, society, suppliers, customers, shareholders and employees.
The Board spends time engaging with relevant stakeholders, including employees, clients, investors and
regulators to better understand their views and perspectives. The Board will continue to enhance the
mechanism that ensures that the Group’s stakeholders are given due regard and consideration as part of the
Board’s decision-making.
This section describes the ways the Board takes into account in its discussions and decision-making, the
interests of stakeholders and the matters set out in section 172 of the Companies Act.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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275
1. Board of Directors (continued)
1.1 The Role of the Board (continued)
Stakeholders (continued)
The Chairman, members of the Board, chairs of Board committees and members of Senior Management
regularly meet with regulators including the Joint Supervisory Team (‘JST’), the Central Bank of Cyprus
(‘CBC’), the European Central Bank (‘ECB’) and others. Discussions include regulation and supervision, risk
governance and oversight, the future of the banking industry, climate-related and environmental risks,
strategic challenges and rebuilding culture. The Board is regularly updated on these meetings. Management
provides regular briefings to the Board on regulatory engagement and correspondence which ensures that the
Board remains aware of regulatory expectations and areas of focus.
The Bank continues to operate successfully within a complex regulatory framework of a holding company
which is registered in Ireland, listed on two Stock Exchanges and run by a number of rules and regulations. Its
governance and management structures enable it to achieve present and future economic prosperity,
environmental integrity and social equity across its value chain. The Bank has set up a robust governance
structure to oversee its Environmental, Social and Governance (‘ESG’) agenda. Progress on the
implementation and evolution of the Group’s ESG strategy is monitored by the Sustainability Committee and
the Board of Directors. The Sustainability Committee is a dedicated executive committee set up in early 2021
to oversee the ESG agenda of the Group, review the evolution of the Group’s ESG strategy, monitor the
development and implementation of the Group's ESG objectives and the embedding of ESG priorities in the
Group’s business targets.
Several policies have been updated, and this effort will continue in the coming years, as it will be conducive in
streamlining operations and culture with the Bank’s ESG ambition. At the same time, the Bank will intensify its
support to its clients and communities in becoming increasingly sustainable and will respond to the heightened
importance the Bank’s investors and shareholders attach to ESG matters. The Bank has the commitment, the
scale and the reach to deliver the desired change across Cyprus in the coming years. Environmentally friendly
products have been launched, and the Bank will continue to enrich its products and services in line with its
ESG Strategy and the Recovery and Resilience Plan for Cyprus.
The Company has adopted the United Nations 2030 Agenda, as represented by the Sustainable Development
Goals (SDGs) for 2030, which provides a shared blueprint for peace and prosperity for people and the planet,
now and into the future. The Group’s management has decided that the Company should actively contribute to
the achievement of the SDGs and work effectively with its stakeholders to accelerate inclusive growth, to
confront climate change and achieve sustainable development. The Group has committed to becoming carbon
neutral by 2030 and to have net zero emissions by 2050, whilst at the same time supporting its customers
and communities in this transition. The Group has also committed to the following primary ESG targets, which
reflect the pivotal role of ESG in the Bank’ strategy:
● Steadily increase Green Asset Ratio
● Steadily increase Green Mortgage Ratio
● ≥30% women in Group’s management bodies by 2030.
The Company participates in the European programme Business4Climate and commits to a more active
involvement in climate protection. This means the reduction of greenhouse gas emission by 8% until 2030,
through a customised action plan that includes policy implementation, measures and daily practices which
contribute in mitigating the Group’s environmental footprint.
The Bank is a valid member of the Business Integrity Forum (BIF) which is an internationally recognised forum
of credible corporations that form this alliance with the purpose of supporting and promoting business ethics
and integrity via the adoption of a specific framework of governance guidelines, conformity with which is
validated on an annual basis.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
276
1. Board of Directors (continued)
1.1 The Role of the Board (continued)
Stakeholders (continued)
True to its vision of services beyond banking, the Group in partnership with the Non-Governmental
Organisation Reaction created SupportCy in 2020, a network of companies and organizations which supported
the state mechanism and society in general in its fight against the pandemic of COVID-19. SupportCy became
a legacy that will continue to offer, based on the collaborations and mutual support of its members. The total
amount provided through SupportCy to society surpassed €650,000 while the network of companies and
organizations grew to 130. SupportCy provides support to the Ministry of Health, the Ministry of Labour,
Welfare and Social Insurance and the Ministry of Education.
More information on the initiatives of the Company with respect to its role in society can be found in the
Corporate Sustainability Report on https://www.bankofcyprus.com.cy/group/corporate-responsibility/our-
sustainability-reports/. SupportCy was a result of the strategy of the Group as approved by the Board in not
only offering a sponsorship but rather through this network of partners providing support wherever needed in
cooperation with the state mechanism.
At the centre of the Bank’s leading social role lie its investments in the Bank of Cyprus Oncology Centre (with
an overall investment of c.€70 mn since 1998, whilst 60% of diagnosed cancer cases in Cyprus are being
treated at the Centre), the work of SupportCy network, the contribution of the Bank of Cyprus Cultural Centre
in promoting the cultural heritage of the island, and the education of over 30 entrepreneurs and financial
support of €60.000 provided via the IDEA Innovation Centre. Staff have continued to engage in voluntary
initiatives to support charities, foundations and people in need.
The Bank maintains a Donations, Sponsorships and Partnership Policy which does not allow sponsorship of
political parties or any associations or organisation related directly or indirectly to one.
The Company aims to develop healthy and mutually beneficial business relationships with its vendors and
business partners. To this respect it has established a Vendor Management Unit, which operates according to
the Sourcing Procurement and Vendor Management Policy approved by the Board, to ensure the prevalence of
transparency, integrity, fair competition and accountability throughout the execution of the process of
procurement. A structured assessment and due diligence is executed prior to selecting a supplier. The Group
develops healthy partner-like relationships with major suppliers for regular consultation and procurement
planning, leading to enhanced efficiencies as well as improved quality of purchased goods and services.
The Board continues to closely monitor developments in, and the effects of COVID-19 on both the global and
Cypriot economy. Economic activity recovered strongly in 2021, driven by domestic demand as well as by
external demand in the second half of the year, reflecting a strong recovery in tourist activity in the period. At
the same time, the Group has continued its focus on providing support to its customers, staff and community.
Government support to businesses and households remained substantial in the year. Over the medium term,
prospects remain positive aided also by the Recovery and Resilience Fund of Next Generation EU. The Bank’s
medium term strategic priorities are clear, with a renewed focus on growing revenues in a more capital
efficient way, whilst striving for a leaner operating model. In addition, the Group continues to focus on further
strengthening its asset quality, whilst maintaining a good capital position, in order to continue to play a vital
role in supporting the recovery of the Cypriot economy. Delivery on the Bank’s medium term strategic
priorities is enabled by the Group’s transformation plan. The Group aims to grow its high quality new lending,
drive growth in niche areas for further market penetration and diversify through non-banking services, such as
insurance and digital products.
The Group continues to work towards becoming a more customer centric organisation. The Board receives
regular updates on progress against customer metrics from management. In addition, its understanding of
customers’ perspectives is informed by deep dives on customer themes through customer surveys and focus
groups and through customer complaints. To further enhance the customer-centric focus of its strategy the
Board was informed of the stock taking of customer experience issues encountered while servicing in branch
channels, and the actions taken to resolve such issues.
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1. Board of Directors (continued)
1.1 The Role of the Board (continued)
Stakeholders (continued)
The Bank of Cyprus’ vision is to create lifelong partnerships with its customers, guiding and supporting them in
a changing world. Its marketing slogan ‘In every next move’ indicates the commitment of the Bank to this
respect. A transformation plan is in progress to enable modern banking by digitally transforming customer
service, as well as internal operations. The transformation plan will enable delivery on the Group’s strategic
pillars, with key shifts focusing on a leaner and more efficient operating model, profitability and optimisation
of the client service and distribution models with an emphasis on the customer. The benefits of this
transformation are already enjoyed by the Bank’s customers who have online access to banking services
through their computer, tablets and mobile devices. In support of government guidelines to limit movements
during the pandemic, the Bank encouraged its customers to shift to safe digital channels for most of their
transactions, avoiding all physical presence in branches.
The Bank has embarked on a revolutionary development of Digital Onboarding of clients, which has improved
customer experience and timeliness of service, but also contributes to the further de-risking of the Bank via
the gradual termination of the professional intermediaries’ channel and lastly supports the environmental
integrity of the Bank.
The Group has very low appetite for threats and losses arising from cyber-attacks and information misuse. The
security, protection and privacy of personal data are important to the Group. Securing Bank’s information and
systems has been one of the most significant priorities for the Board. Investments are thus made in terms of
people to first, second and third lines of defence employing qualified security engineers, analysts and IT
auditors. In addition, significant investments are made in innovative technology on a continuous basis (such
as machine learning and artificial intelligence). Management support is at the highest possible level and there
is direct independent reporting to the appropriate Board committees. In parallel all its security controls follow
regulatory standards (GDPR, NIS, PSD2, PCI, SWIFT) and international best practices (such as ISO 27001).
Further, the Group maintains a zero-tolerance policy for money laundering and terrorism financing incidents
and no violation of the relevant legislation or breach of the Group’s internal policies, procedures and its
compliance framework are permitted. The Board expects strict adherence to policies and procedures from
every member of staff and this is reiterated in every meeting of the AC, through continuous refresher training
sessions for Anti-Money Laundering (‘AML’) and through the Key Performance Indicators (‘KPIs’) of Local
Compliance Officers at each unit of the Group.
The establishment in early 2021 of the Transformation Office to provide a holistic oversight and challenge of
all transformation initiatives and programmes in order to materially improve performance and/or
organisational effectiveness provides management and the Board with the ability to proactively identify any
areas of challenge and competing priorities. This programme has impacted and continues to impact various
facets of the Group’s business model, affecting the structure of the Bank, given that the overriding objective
is to simplify processes, make the most of synergies and knowledge-sharing, inter alia.
Moreover, significant changes are being implemented as per the Board’s direction to enable a more modern
and efficient workplace. New technologies and tools have been introduced that will significantly improve
employee collaboration and knowledge sharing across the organisation. A series of automations, streamlining
processes and organisational innovation initiatives resulted in improved customer services, internal efficiencies
and savings, in accordance with the Group’s strategy aimed at enhancing productivity and achieving a lean
operating model and a lower cost base over time. BOC PCL has already begun the journey of transforming its
branch network. The first model branch in Nicosia was launched in February 2021 while a second branch will
be launched in Limassol in early 2022.
Next steps include the transition to the new renewed Internet Banking platform, while soon customers will be
able to easily have an overall view of their finances. At the same time, new tools such as defining and
managing budgets and opening of new lending products entirely through the Group’s digital channels will soon
be available to customers.
The Board is regularly updated through the HRRC on matters relating to employees. Staff members remain a
key factor in achieving the Group’s objectives. Further to the Board’s direction that the Group maintains its
high-performance culture, the Bank has continued to upgrade its staff’s skill set by providing training and
development opportunities to all staff, and capitalising on modern delivery methods.
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1. Board of Directors (continued)
1.1 The Role of the Board (continued)
Stakeholders (continued)
In 2021, the Bank continued to place special emphasis on staff wellness offering seminars on Healthy Eating,
Mental Health in the workplace and Financial Planning to 630 employees, through its ‘Well at Work program’.
The Group’s commitment in safeguarding gender equality in the workplace has been translated into policies
and practices over the years. In 2021, the Group received a Certificate by the Ministry of Labour, Welfare and
Social Insurance for applying good practices for gender equality in the working environment.
The right of association including the right to trade unions and accession to them, is constitutionally
guaranteed by article 21.2 and article 11 of the European Convention on Human Rights. These rights are also
reflected in article 21 of the Constitution of the Republic of Cyprus (1960, amended 2013). The Union of
Banking Employees of Cyprus was registered as a trade union in 1956 and still remains the sole representative
of workers in the banking sector. Almost all employees of the Bank (97.6%) are members of the Cyprus Union
of Bank Employees. A collective agreement is in place.
The Board has set the reshaping of the Bank’s culture as a key strategic driver of value and success. The
Ethics, Conduct & Culture Committee (‘ECCC’) works closely with the executive team to ensure a continued
focus on the Group’s culture, to achieve the Group’s purpose, mission and vision and live up to the Group’s
Code of Ethics. The Committee together with the HRRC is working towards empowering the Group’s existing
engagement mechanisms between the Board and the workforce.
The Ethos Project under the auspices of the ECCC and the Chief of Staff was set up to bolster the culture of
ethics and risk management for the better protection of employees, customers and the Group. The Bank
developed an action plan focused on the cultivation of a healthy culture of ethics and risk management and
the development of the important profiles of desirable behaviours that are required to help strengthen the
genuine relationship of trust with the Group’s customers, investors and regulators.
Short video clips, under the slogan ‘I am the Bank” endorsed by the Board, were produced to raise awareness
among staff about risks that should not be overlooked in their effort to best serve their clients, on which
practices to avoid and which to cultivate. Both the Chief of Staff and the Chairman of the ECCC were involved
in passing this message to staff.
The Board also reviews the results of the Pulse and Staff Opinion Surveys and how these are transformed into
actions in response to staff feedback. The Group appointed more than 25 Health Champions across all its
sectors who interviewed and discussed with all staff their perception relative to what needs to be done in the
Group Organisational Health Index (‘OHI’). The OHI focuses on – and simultaneously examines - all aspects of
the Group’s work culture as well as the way it operates as an organization. Action plans were set in place for
all areas of focus identified.
The Board, through the AC reviews the effectiveness of the Whistleblowing Policy annually. Further to
recommendation by the ECCC, the Board decided that whistleblowing should be encouraged for those cases
where staff do not comply with regulations and act out of policy. Such instances should be part of the
appraisal and a case for triggering disciplinary procedures.
The Group has improved its risk profile and financial viability while improving its social and environmental
approach and maximising its positive impact. The Group’s financial performance is highly correlated to the
economic and operating conditions in Cyprus. The Group is a diversified, leading, financial and technology hub
in Cyprus. It has delivered significant progress against its strategy announced in November 2020 and this,
together with the solid growth outlook for the Cyprus economy, has allowed the Group to update its medium-
term strategic targets with an increased focus on creating shareholder value. The Group now increases its
medium-term return on tangible equity (ROTE) target to over 10%, providing the foundations for a return of
dividend distributions, subject to performance and relevant approvals. The Group has continued to provide
high- quality new loans via prudent underwriting standards. Growth in new lending in Cyprus has been
focused on selected industries more in line with the Bank's target risk profile.
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1. Board of Directors (continued)
1.1 The Role of the Board (continued)
Stakeholders (continued)
Significant deleveraging of the Cyprus economy of the past seven years is coming to an end. The Group aims
to benefit from its strong market position; to help deploy the Cyprus Recovery and Resilience Fund; to grow
shipping and international corporate lending with prudence; and to explore market opportunities in trades of
performing loans in Cyprus. At the same time, it aims to support its customers in the transition to a
sustainable future through, for example, the provision of environmentally friendly products.
Management is placing emphasis on diversifying income streams by optimising fee income from international
transaction services, wealth management and insurance. The Group’s insurance companies, EuroLife Ltd and
General Insurance of Cyprus Ltd (GIC) operating in the sectors of life and general insurance respectively, are
leading players in the insurance business in Cyprus, and have been providing a stable, recurring income,
further diversifying the Group’s income streams. Furthermore, there are initiatives underway to enhance
revenues from the insurance business in the medium term. The Group currently has sustainable healthy
profitability from its insurance business and it is aiming for further growth leveraging on the Bank’s strong
market share. Finally, the Group aims to introduce the Digital Economy Platform to generate new revenue
sources over the medium term, leveraging on the Bank’s market position, knowledge and digital
infrastructure. The Platform aims to bring stakeholders together to drive opportunities in lifestyle banking and
beyond.
Following the imposition of restrictive measures by the Council of the European Union and other jurisdictions
against Russia and Belarus, and various Russian and Belarusian entities and individuals and although the
Group’s direct exposure to Russia, Ukraine or Belarus is limited, the crisis in Ukraine may have an adverse
impact on the Cypriot economy, mainly due to a negative impact on the tourism and professional services
sectors, increasing energy prices resulting in inflationary pressures, and disruptions to global supply chains. In
the event that a significant decrease in the number and volume of transactions occur as a result of the crisis,
this may adversely impact transactional net fee and commission income for the Group, particularly in
international banking services. Overall, the Group expects limited impact from its direct exposure, while any
indirect impact will depend on the duration and severity of the crisis and its impact on the Cypriot economy,
which remains uncertain at this stage.
To facilitate the Board’s understanding of the views of major shareholders, directors receive an investor
relations update from management at all scheduled meetings of the Board. The content of this update includes
market updates, details of recent investor interactions, share price and valuation analysis and share register
analysis. The Company facilitates direct dialogue with investors since it is striving for the greatest possible
transparency. It also works towards integrating feedback in its corporate strategy. This is achieved through
participation in conferences, private meetings, virtual road shows, frequent conference calls and at least
quarterly updates on the results of post-corporate transactions of great significance. The Chairperson and the
Senior Independent Director (‘SID’) maintain direct contact with investors. The chairpersons of the
committees make themselves available for questions at the AGM. The CEO, the Executive Director Finance &
Legacy and the Manager Investor Relations engaged extensively in 2021 with existing shareholders and
potential new investors during individual or group meetings and on roadshows and investor conferences.
The Board is closely monitoring the execution of the strategic plan and therefore regularly discusses progress
against targets. The Board instils the right tone from the top; has set down the values of the Company i.e.
integrity, transparency, accountability, confidentiality and sustainability and aims to embed them in every
activity and operation of the Group. The Group is thus creating value for its customers, shareholders and
employees.
Leadership
There is a clear separation between the role of the Chairperson who is responsible for the leadership and
effectiveness of the Board, and the Chief Executive Officer (‘CEO’) who is responsible for the running of the
Company’s business. This clear division of responsibility is documented in the Board Manual and the Corporate
Governance Policy which have been approved by the Board. The Corporate Governance Policy is available on
the Group’s website https://www.bankofcyprus.com.cy/globalassets/who-we-are/our-governance/group-
corporate-governance-policy.pdf. The day to day operations of the Group have been delegated to
management.
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1. Board of Directors (continued)
1.1 The Role of the Board (continued)
Role of the Chairperson
The Chairperson oversees the Board’s operation and effectiveness, including ensuring the agenda cover the
key strategic items confronting the Group; sets the style and tone of Board discussions; encourages the active
participation of members of the Board in the discussions and activities of the Board and sets clear
expectations regarding the Group’s culture, values and behaviour. The Chairperson also ensures that there is
effective communication with shareholders and promotes compliance with corporate governance standards.
Role of Vice-Chairperson
The Vice-Chair provides support and guidance to the Chairperson as required and in coordination with the
Chair, acts as an ambassador for the Board and Group in its relationship with regulators, employees and
clients, and deputises the Chairperson at Board, general shareholder or other meetings when the Chair is
unable to attend.
Role of Senior Independent Director
The Senior Independent Director (the ‘SID’) is available to shareholders and members of the Board if they
have concerns that have not / cannot be dealt with through normal communication channels. He provides a
sounding board for the Chairperson, as well as support to the Chairperson in delivering his objectives.
He chairs an executive session of the non-executive directors to assess the performance of the Chairperson as
part of the annual evaluation of Board performance and takes responsibility for an orderly succession process
for the Chairperson working closely with the NCGC. He also attends meetings with major shareholders to
ensure that there is a balanced understanding of the issues and concerns that they may have.
Non-Executive Directors
Non-executive directors are responsible for monitoring executive activity and contributing to the development
of strategy of the Company. They are not Company employees and do not participate in the daily
management of the Group.
Their role is to constructively challenge management, to scrutinize the performance of senior management in
meeting agreed goals and objectives and to monitor the reporting of the performance. Non-executive directors
must also satisfy themselves on the integrity of financial information and that the systems of financial
controls, compliance and risk management frameworks and the internal control framework are robust and
defensible. The NEDs (including the Chairman and the Deputy Chairperson) bring independent challenge and
judgement to the deliberations of the Board through their character, objectivity and integrity.
Regular meetings are held between the non-executive directors in the absence of the executive directors and
at least once a year in the absence of the Chairperson.
Executive Directors
Executive Directors have executive functions in the Group in addition to their Board duties. The role of
Executive Directors, led by the CEO, is to propose strategies to the Board and, following challenging Board
scrutiny, to execute the agreed strategies to the highest possible standards.
The CEO is an employee of BOC PCL. The CEO’s termination of employment is subject to six months’ notice to
that effect to be given to the executive director, without cause but at the sole discretion of BOC PCL. The
Executive Director Finance & Legacy (‘EDFL’) is also an employee of BOC PCL and was appointed to the Board
in October 2021. The EDFL’s employment is mainly based on the provisions of the collective agreement in
place, which provides for notice or compensation by BOC PCL based on years of service and for a four-month
prior written notice by the executive director in the event of a voluntary resignation.
Role of the CEO
The CEO is responsible for the execution of the approved strategy and has ultimate executive responsibility for
the Group’s operations, performance and compliance. In his day-to-day management of the Group, as
delegated by the Board, the CEO is supported with recommendations and advice from the Executive
Committee (‘ExCo’) which he chairs. The CEO’s service contract is reviewed at least every five years.
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1. Board of Directors (continued)
1.1 The Role of the Board (continued)
1.1.1 Information and Support
The Board meets on a regular basis and has a formal schedule of matters for consideration which evolves
based on business needs and which the Board formally reviews annually. Performance against delivery of the
agreed key financial priorities is reviewed at every meeting with particular reference to the detailed Group
management accounts. The CEO and the EDFL comment on strategy, current business performance, the
market, regulatory and other external developments at each meeting and present comparative data. The
Board receives regular reports and presentations from other senior management on developments in the
operations of the Group. The Board considers reports from each of the Board committees, while regular
reports are also provided on the Group’s risk appetite, top and emerging risks, risk management, credit
exposures and the Group’s loan portfolio, asset and liability management, liquidity, litigation, compliance and
reputational issues.
Under the supervision of the Chairperson of the Board, the Company Secretary’s responsibilities include
facilitating the flow of information within the Board and its committees, between senior management and non-
executive directors and between heads of internal control functions and non-executive directors, as well as
facilitating the induction, development and evaluation of members of the Board.
All members of the Board have access to the advice and services of the Company Secretary and the Corporate
Governance Compliance Officer (the ‘CGCO’) who can provide relevant information related to Board
procedures and the CSE and UK Codes. The Company Secretary is responsible for ensuring that the directors
are provided with relevant information on a timely basis to enable them to consider issues for decision and to
discharge their oversight responsibilities. Both the appointment and removal of the Company Secretary is a
matter for the Board as a whole.
The directors also have access to the advice of the Group external legal advisors and to independent
professional advice at the Group’s expense if and when required. Committees of the Board have similar access
and are provided with sufficient resources to undertake their duties. The Company Secretary provides
dedicated support for members of the Board on any matter relevant to the business on which they require
advice separately from or additional to that available in the normal board process. All members of the Board
benefit from directors’ and officers’ liability insurance in respect of legal actions against them.
Occasionally the Board holds deep dive sessions with key business lines to provide members with a deeper
insight into key areas of strategic focus, enable better quality of debate and enhance knowledge. The deep
dives usually include presentations and opportunity for discussion. In 2021, discussions took place on the
Capital Plan, the Resolvability Plan and the MREL Compliance Plan, including discussions with the regulators.
Other extensive discussions were on the initiatives to improve the risk culture of the Group, the ESG Strategy,
the continued de-risking from NPE loans and the new organisational structure of management.
The key areas of focus in 2021 for the Board, inter alia, were:
Group
Strategy
Four-year business and capital plan;
Sale of a portfolio of Non-performing exposures/trades - Helix 2A&B;
Sale of a mixed portfolio of NPEs and REOs - Helix 3;
The progress of the Digital Economy Platform;
The Transformation programme;
Sustainability Strategy – Setting up of the Sustainability Committee;
The Bank’s contribution to environmental integrity and social equity.
Regular
Updates
Group Performance Report;
Finance report, including budgets, forecasts and capital positions;
Risk report;
CEO’s report;
Reports from chairpersons of committees;
Cost Management Progress.
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1. Board of Directors (continued)
1.1 The Role of the Board (continued)
1.1.1 Information and Support (continued)
Business
environment
Cyprus economic development in light of the pandemic;
Pandemic Reforecast;
Monitoring of clients under Moratorium with any arrears;
Quarterly economic reports;
Investors and stakeholders’ perspectives;
Market updates and share trading activity.
Financials
2020 full year results;
2021 half-year results;
Impairments;
Minimum Requirement of own funds and Eligible Liabilities (MREL) Funding Plan;
Internal Capital Adequacy Assessment Process (‘ICAAP’) Report;
Internal Liquidity Adequacy Assessment process (‘ILAAP’) Report.
Business
performance
Review of business lines’ strategies;
Review of the progress of non-performing loans’ management;
Credit portfolio overview;
Tier 2 Repurchase and new issue;
Customer performance measurement framework;
Review of the performance of Corporate Finance projects.
Culture
Risk and Compliance culture;
Talent Management updates.
Risk
management
Group Recovery Plan;
Pillar 3 Disclosures;
Group Risk Appetite Framework;
Progress of implementation of SREP recommendations;
Regulatory interactions;
Oversight of local subsidiaries;
Litigation.
Governance
and
regulatory
compliance
Board effectiveness and Chairman’s performance reviews;
Chairman’s remuneration;
Review and approval of various Group policies;
Conflicts of Interest management;
Non-financial reporting;
Appointment of key function holders;
Succession planning;
New streamlined organisational structure;
On-going supervisory dialogue and communication with regulatory authorities.
Strategy Development
The strategic objectives for the Group are to become a stronger, safer and a more efficient institution capable
of supporting the recovery of the Cypriot economy and delivering appropriate shareholder returns in the
medium term. The key pillars of the Group’s strategy are to:
Grow revenues in a more capital efficient way; by enhancing revenue generation via growth in performing
book and less capital-intensive banking and financial services operations (Insurance and Digital Economy);
Improve operating efficiency; by achieving leaner operations through digitisation and automation;
Strengthen asset quality; maintaining high quality new lending, completing legacy de-risking, normalising
cost of risk and reducing (other) impairments, whilst managing post pandemic NPE inflows;
Enhance organisational resilience and ESG (Environmental, Social and Governance) agenda; by continuing
to work towards building a forward-looking organisation with a clear strategy supported by effective
corporate governance aligned with ESG agenda priorities.
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1. Board of Directors (continued)
1.1 The Role of the Board (continued)
1.1.1 Information and Support (continued)
The Group has a clear strategy in place, leveraging on its strong customer base, its renewed customer trust,
its market leadership position, and further developing digital knowledge and infrastructure, with a clear focus
on creating shareholder value. The Group now increases its medium-term return on tangible equity (ROTE)
target to over 10%, providing the foundations for a return of dividend distributions, subject to performance
and relevant approvals.
Maintaining a strong capital base has been a key priority for management over the past few years and this
remains equally important for the Group going forward. The Group’s organic capital generation is to be
supported by the improving Return on Tangible Equity (ROTE). Going forward, capital will be deployed for
organic growth of the loan book, investment in the business, against regulatory impacts and one-off cost
optimisation charges. Detailed information relating to strategy is set out in Strategy and Outlook of the
Directors' Report of the 2021 Annual Financial Report on page 30.
1.2 Composition of the Board of Directors
As at 31 December 2021, the Board comprised of twelve members: the Group Chairman who was independent
on appointment, two executive directors and nine non-executive directors. According to the provisions of the
CBC Directive on Suitability eight of the non-executive directors are independent. The names and brief
biographical details including each director’s background, external directorships and whether these are
executive or non-executive, experience and independent status are set out in section 4 of this report.
The Board considers that a Board size of 10-12 directors allows for a good balance between having the full
range of skills and experience necessary on the Board and to populate its committees while retaining a sense
of accountability by each director for Board decisions; to govern the business effectively, while enabling full
and constructive participation by all directors given the size and operations of the Group and the time
demands placed on the directors. The Board recognises the need to identify the best qualified and available
people to serve on the Board. In accordance with the Board Nominations Policy, all appointments are made on
merit against objective criteria (including skills and experience) with due regard for the benefits of diversity on
the Board. The Board plans for its own renewal with the assistance of the NCGC which regularly reviews Board
composition, tenure and ensures plans are in place for orderly succession to both the Board and Executive
positions.
Both on an individual and a collective basis, the directors are considered to have the range of skills,
understanding, experience and expertise necessary to ensure the effective leadership of the Group and that
high corporate governance standards are maintained.
The NCGC ensures a formal, rigorous and transparent procedure when considering candidates for appointment
to the Board and maintains continuous oversight of the Board’s composition to ensure it remains appropriate
and has regard for its purpose, culture, major business lines, risk profile and governance requirements.
The NCGC at least annually reviews the structure, size, and composition of the Board (including skills,
knowledge, experience, independence and diversity) and recommends to the Board the skills and experience
required to provide sound governance oversight. These include experience in banking, insurance, markets and
regulatory environments, risk management, financial management, strategy development, technology and
operations experience and knowledge of law, governance, compliance and audit. Assessing the skills profile of
the Board ensures that the Board and committees comprise of members having an all-embracing perception of
the Group’s activities and the risks associated with them. The composition of the Board remains under
continuous review and the NCGC maintains a constant focus on succession planning to ensure the continuation
of a strong and diverse Board, which is appropriate to the Group’s purpose and the industry within which it
operates.
The Committee’s succession planning process has regard for the impact of expected retirements of directors
and the Group’s desired culture and strategic direction. As part of the process, the Committee prepares a
detailed role profile, based on its analysis of the skills and experience needs and selects, where appropriate,
an experienced third-party professional search firm to facilitate the process. The search firm develops an
appropriate pool of candidates and provides independent assessments of the candidates. The NCGC then
works with that firm to shortlist candidates, conduct interviews/meetings (including meetings with members of
the NCGC) and carry out comprehensive due diligence.
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1. Board of Directors (continued)
1.2 Composition of the Board of Directors (continued)
The Committee follows the requirements of the Group Suitability Policy which is fully aligned with the CBC
Directive on Suitability (and the Joint ESMA and EBA guidelines on the assessment of the suitability of
members of the management body) and ensures a robust assessment of potential candidates which includes
an interview by the NCGC and recommendation to the Board prior to the submission of suitability applications
to the regulator for consideration.
In accordance with the Board Nominations Policy, the assessment and due diligence process is extensive and
includes self-certification confirmations of probity and financial soundness as well as external checks involving
a review of various publicly available sources. All potential candidates are assessed to ensure they have the
ability to act with integrity, lead by example and promote the desired culture, which evidences a commitment
to high standards and values. The process also involves the NCGC satisfying itself as to the candidate’s ability
to devote sufficient time to the role, his/her independence and suitability. At the same time the NCGC
assesses and documents its consideration of possible conflicts of interest. Finally, an assessment of collective
suitability is performed following which the NCGC makes recommendations to the Board, according to the
provisions of the Joint Guidelines on Suitability.
Regulatory assessment and formal approval are required and given for all Board appointments.
The Group carries out a review of the ongoing suitability of Board members on an annual basis, whereby they
are required to confirm any changes in their circumstances in respect of their compliance with the CBC
Directive on Suitability. All changes in circumstances disclosed, are assessed and their materiality determined.
Following the review of 2021, certain changes to directorships were reported. The Board concluded that each
of the directors has the requisite standard of fitness, probity and financial soundness to perform his/her
functions effectively and commits the necessary time for the execution of his/her duties.
1.2.1. Meetings of the Board of Directors
A yearly planner is prepared by the Company Secretary, with input from all Board members, to map out the
flow of key items of business to the Board. The Group has a comprehensive and continuous agenda setting
and escalation process in place to ensure that the Board has the right information at the right time and in the
right format to enable the directors to make the right decisions. The Chairperson leads the process assisted by
the Company Secretary.
The process ensures that sufficient time is being set aside for strategic discussions and business critical items.
Matters may be added to agendas in response to external events, non-executive directors’ requests and
regulatory initiatives inter alia.
The Company Secretary is closely involved in preparing the schedule of all Board and committee meetings and
the agendas for these meetings, in conjunction with the Chairperson, ensuring that relevant information is
dispatched timely to all members of the Board.
Agendas and papers are circulated in a timely manner prior to each meeting and all members of the Board are
informed in writing of forthcoming Board meetings to allow them adequate time to review the relevant
information and enable them to fully discharge their duties. Meetings packs are typically uploaded a week in
advance of the meetings and communicated to all members of the Board via a secure electronic Board portal
to ensure they have sufficient time to review the matters which are to be discussed and to seek clarifications
or any additional information they may require.
Generally, members of the senior management team and other senior management members are invited to
attend part of the meetings to ensure effective interaction with the Board. Board meetings have certain
standing items such as a report from the CEO and the EDFL on Group performance, reports from the chairs of
committees and updates from other senior management members. In addition to formal meetings, the Board
meets as necessary to consider matters of a time-sensitive nature. The Chairperson and the chairs of each
committee ensure Board and committee meetings are structured to facilitate discussions.
Committee meetings are held prior to Board meetings with the chairperson of each committee then reporting
matters discussed to the Board. Topics for deep dives or additional items are discussed when required and
include business, governance and regulatory update.
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1. Board of Directors (continued)
1.2 Composition of the Board of Directors (continued)
1.2.1. Meetings of the Board of Directors (continued)
During 2021 the Board held 14 meetings. Only one meeting was held in the physical presence of the members
due to the continuing restrictions in travel and the measures in place to fight the pandemic. All other meetings
were held through teleconferencing. Further details on the number of the meetings of the Board and its
committees and attendance by individual directors are set out below. The offsite meeting was held in
September 2021. During the year, the Chairperson and the non-executive directors met virtually, without the
executive directors’ present, to discuss a range of business matters.
The Board makes full use of technology such as teleconferencing, a Board portal and tablets in its meeting
arrangements. This leads to greater flexibility, security and efficiency in Board paper distribution and meeting
arrangements. Minutes and matters arising from the meetings are produced and circulated to the directors for
review and feedback. Matters arising are followed up in subsequent meetings through relevant updates.
Board of Directors of BOCH 1/1/2021-31/12/2021
Name
Board of
Directors
AC
HRRC
NCGC
RC
Efstratios Georgios Arapoglou
(Chairman)
14/14
8/8
Lyn Grobler (Vice-Chairperson)
14/14
11/11
8/8
Arne Berggren
14/14
15/16
8/8*
Maksim Goldman
13/14
10/11
24/25
Paula Hadjisotiriou
14/14
16/16
25/25
Michael Heger
14/14
15/16
11/11
Constantine Iordanou
1
1/1
Eliza Livadiotou
2
2/2
Panicos Nicolaou
14/14
Maria Philippou
13/14
11/11
8/8
Nicos Sofianos
3
10/10
12/12
20/20
Ioannis Zographakis
14/14
16/16
25/25
Total meetings
4
14
16
11
8
25
1 Appointed on 29 November 2021
2 Appointed on 6 October 2021
3 Appointed on 26 February 2021
4 The number of Board meetings at BOC PCL level was 27 during the year 2021. The attendance of these meetings can be
found on page 294.
1.2.2 Terms of Appointment, Retirement and Re-election of Directors
Non-executive directors are appointed for an initial three-year term and are typically expected to serve a
further term of three years, assuming satisfactory performance and subject to the needs of the business,
shareholder re-election and continuing suitability. The Board may invite directors to serve additional periods. A
non-executive’s term of office will not extend beyond 12 years in total. Any re-appointment beyond 6
cumulative years is considered on an annual basis and has regard for a number of factors including
performance, independence, the need for progressive refreshing of the Board over the medium to long term
and the best interest of the shareholders.
The Board may at any time appoint any person who is willing to act as director and who fulfils the criteria as
these are determined in the Board Nominations Policy, either to fill a vacancy or as an addition to the existing
Board, but the total number of directors should not exceed 13. Any director so appointed is subject to election
at the AGM following his/her appointment. The NCGC considers, inter alia, whether a potential director is able
to devote the requisite time and attention to the Company’s affairs, prior to the Board’s approval of the
individual’s appointment.
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1. Board of Directors (continued)
1.2 Composition of the Board of Directors (continued)
1.2.2 Terms of Appointment, Retirement and Re-election of Directors (continued)
According to the Articles of Association of the Company, all directors retire each year and if eligible offer
themselves for re-election. The following directors, being eligible, offered themselves for re-election and were
elected at the AGM on 25 May 2021: Efstratios-Georgios Arapoglou, Arne Berggren, Maksim Goldman, Lyn
Grobler, Paula Hadjisotiriou, Michael Heger, Panicos Nicolaou, Maria Philippou, Nicos Sofianos and Ioannis
Zographakis. Eliza Livadiotou and Constantine Iordanou were also elected to the Board subject to ECB consent
which was provided on 6 October 2021 and 29 November 2021 respectively. The 2021 AGM is scheduled for
20 May 2022, and in line with previous AGMs, all directors will retire from office at the date of the AGM and
offer themselves for re-election.
The names of directors submitted for election or re-election are accompanied by sufficient biographical and
other relevant information in the AGM documentation and are available on the Group’s website to enable
shareholders to take an informed decision.
1.2.3 Conflicts of interest
The Group Policy on Conflict of Interests focuses on principles, procedures and arrangements for the
prevention, identification, documentation, escalation and management of actual, potential or perceived conflict
of interests. The policy is reviewed and approved by the Board annually and is communicated throughout the
Group. An enhanced procedure for Board members and senior management to self-assess potential conflict of
interests annually was implemented in 2021.
The Board Manual documents procedures specifically relating to directors’ conflict of interests, and sets out
how these are to be identified, reported and managed to ensure that the directors act at all times in the best
interests of the Company. The Board Manual is reviewed and approved by the Board, at least annually.
The Board has adopted a Dealing Code for transactions in the Company’s securities by Persons Discharging
Managerial Responsibilities (PDMRs). The Dealing Code complies with the European Market Abuse Regulation.
All PDMRs have been informed of their obligations under the Dealing Code in writing. All directors have
complied with the Dealing Code during 2021.
None of the directors had, during the year or at year end, a material interest, directly or indirectly in any
contract of significance with the Group (See Note 50 of the Consolidated Financial Statements of Bank of
Cyprus Holdings).
1.2.4 Time commitment
The NCGC ensures that individual Board directors have sufficient time to dedicate to their duties, having
regard to applicable regulatory limits on the number of directorships which may be held by any individual
director. The Board has determined the time commitment expected of non-executive directors to be 35-40
days per annum. Time devoted to the Group can be considerably more when serving on Board committees.
BOC PCL has been classified as a ‘significant institution’ under the European Union (Capital Requirements)
Regulation 2014. The CBC Directive on Suitability which incorporates the provisions of Article 91 of the
European Capital Requirements Directive (‘CRD IV’) on management bodies of credit institutions, determines
that a director cannot hold more than one of the following combinations:
One executive directorship with two non-executive directorships; or
Four non-executive directorships.
Executive or non-executive directorships held within the same group, count as a single directorship.
Directorships in organisations which do not pursue predominantly commercial objectives do not count for the
purposes of the above guidelines.
The ECB which supervises BOC PCL following the European Union Regulation 468/2014 which established the
framework for cooperation within the SSM between the ECB and national competent authorities may in
exceptional cases and taking into consideration the nature and complexity of the business of the Group,
authorise members of the Board to hold one additional directorship.
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1. Board of Directors (continued)
1.2. Composition of the Board of Directors (continued)
1.2.4 Time commitment (continued)
In 2019 the ECB having assessed the Chairman’s other directorships and the time committed to them, had
granted permission to Mr. Arapoglou to hold one additional non-executive directorship given the very limited
time commitment involved in that directorship. Mr. Arapoglou has demonstrated relevant commitment to his
chairmanship and has fulfilled his responsibilities to the utmost. The executive session of the non-executive
directors has highlighted this proven commitment of the Chairman. Moreover, the external Board Performance
Evaluation, confirmed and highlighted the adequacy of the time commitment of the Chairman to the Bank. In
May 2021 the Chairman stepped down from one of his appointments so that he now holds four non-executive
directorships and as at today meets all regulatory obligations. Finally, all other directors were within the
directorship limits set out for ‘significant institutions’.
All newly appointed members of the Board are provided with a comprehensive letter of appointment detailing
their responsibilities as directors, the terms of their appointment and the expected time commitment for the
role. A copy of the standard terms and conditions of appointment of non-executive directors can be inspected
during normal business hours by contacting the Company Secretary. Members of the Board are required to
devote adequate time to the business of the Group which includes attendance at regular meetings and
briefings, preparation time for meetings and visits to business units.
In addition, non-executive directors are normally required to sit on at least one Board committee, which
involves the commitment of additional time.
Certain non-executive directors such as the Vice-Chair, the SID and committee chairpersons are required to
allocate additional time in fulfilling those roles.
Before their appointment, directors disclose details of their other significant commitments along with a broad
indication of the time committed to such appointments. The directors’ positions on the management bodies of
other companies are noted in their biographical details included in section 4 of this report. Such participation
does not prevent them from devoting the necessary time and attention to their duties as members of the
Board of the Company and is within the limits set by the CBC Directive on Suitability. Before accepting any
external appointments, which may affect existing time commitment for the Board’s business, approval must
be obtained from the NCGC and depending on the nature of the proposed commitment, the Board must
approve as well.
During 2021, all Directors complied with the Board process and sought approval in advance where required.
All Directors are reminded of their obligation under the Board Manual when appointed to any external roles.
It was estimated that in 2021, each non-executive director spent at least 40 days on board-related duties. The
Board considered the time commitment of all directors and concluded that each director devotes the requisite
time for the effective performance of his/her duties as described in the Joint Guidelines on Suitability.
1.3 Board Balance and Independence
The NCGC and the Board determine the independence status of each director on appointment. In addition, the
Board considers each individual against the criteria set out in the UK Code, the CSE Code, the CBC Directive
on Suitability and the Joint Guidelines on Suitability. It also considers their contribution and conduct at Board
meetings, including how they demonstrate objective judgement and independent thinking, annually, to ensure
that the determination regarding independence remains appropriate.
In 2021 the Board considered the principles relating to independence and determined that eight out of nine
Non-Executive Directors in office at 31 December 2021 were independent in character and judgement and free
from any business or other relationships with the Group which could affect their judgement. Maksim Goldman,
by virtue of his employment up to June 2018 by a corporation controlled by a significant shareholder in the
Company, is not considered independent by reference to the provisions of the CBC Directive on Suitability. Mr.
Goldman has always exhibited and continues to exhibit an independent character and judgement and the
Board believes, based on his performance to date, that he too brings independent challenge and judgement to
the deliberations of the Board. Discussions with dissenting shareholders to Mr. Goldman’s election, led to the
nomination and appointment of Mr. Iordanou to the Board.
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1. Board of Directors (continued)
1.3 Board Balance and Independence (continued)
The Chairman, Mr. Arapoglou, was independent on appointment and continues to operate in a manner that is
independent in character and remains objective in his opinions having no other relationship or circumstances
to affect his judgement. He commits the appropriate time for the Group’s business which is slightly more than
the other non-executive directors, but his time commitment does not exceed 55 days per year. He has no
other remuneration from the Group other than as Chairperson of the Board and chairperson of the NCGC.
The status of each director is presented in the biographical details in section 4 of this report.
A relevant ‘Confirmation of Independence’ based on the independence criteria of provision A.2.3 of the CSE
Code is signed annually by each of the independent non-executive directors and is submitted to the CSE
together with the Corporate Governance Report.
1.3.1 Directors’ induction and ongoing development
On appointment, each director receives a full, formal induction plan, tailored to his or her specific
requirements including committee membership. All incoming directors are provided on appointment with an
information pack which includes, among others, the Board Manual, key legislation, directives and regulations
and the Company’s Articles of Association, to facilitate their understanding of how the Group operates and the
key issues that it faces.
Meetings are arranged with senior management on Group and divisional strategy, deep dives on businesses,
an overview of the Group’s risk appetite and Group Risk Framework, corporate governance, internal control
systems, regulatory environment, people strategies, technology and payments. Further, the Company
Secretary under the supervision of the Chairperson develops programmes based on the directors’ individual
needs. A Policy on Induction and Training of Board members has been approved by the Board and can be
found on the website.
Ongoing education is provided for the Board, informed by the effectiveness reviews of the Board and individual
directors, as well as emerging external developments. Focused training of the Board is arranged in conjunction
with scheduled Board meetings where information is provided to ensure that directors receive adequate insight
into a particular area through presentations by Group business units and control functions and briefings with
senior management. Dedicated training sessions also take place on particular issues (refer to table below for
2021 training schedule) usually identified by the directors themselves and the Company Secretary. A training
schedule is prepared at the beginning of each year and directors are expected to attend accordingly.
Education and Development sessions* for the Board members during 2021
Info. Security Awareness Q1 2021
Conflict of Interest
Info. Security Awareness Q2 2021
Info. Security Awareness Q3 2021
MiFID II (part 2) 2021
AML Essentials 2021
*e-learning sessions
The training material is distributed to all directors regardless of attendance. In 2021, all training was in the
form of e-learning sessions on an online platform with an assessment quiz at the end of the training session.
The directors can access this at any time, and once the training is completed, it is recorded on the system to
provide a full audit trail.
Directors are also offered the option of attending suitable external educational courses, events or conferences
designed to provide an overview of current issues of relevance to directors. The Company Secretary ensures
all directors are provided with relevant information on a timely basis to enable them to consider issues for
decision-making and discharge of their oversight responsibilities.
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1. Board of Directors (continued)
1.3 Board Balance and Independence (continued)
1.3.1 Directors’ induction and ongoing development (continued)
In the performance of their roles, executive directors develop and refresh their skills and knowledge of the
Group’s business and operations through regular interactions, meetings and briefings with senior management
and through presenting on the Group’s business to investors and analysts. They remain abreast of
developments affecting the financial services sector and banking by representing the Group’s interests at
conferences, advisory groups and other events and meetings with regulators and other authorities.
The Company Secretary provides the Board with comprehensive guidance on Board procedures and dedicated
support for directors on any matter relevant to the business on which they require advice separately from or
additional to that available in the normal board process.
1.3.2 Board Performance Evaluation
The Board annually reviews its effectiveness and that of its committees and individual members in order to
enhance its operations. The objective of these evaluations is to review past performance with the aim of
identifying efficiencies, opportunities for improvement and maximizing strengths, determining whether the
Board or committee as a whole is effective in discharging its responsibilities and, in the case of individual
directors, to determine whether each director continues to contribute effectively and to demonstrate
commitment to the role.
The Board is subject to external evaluation every three years. The most recent external review begun in late
2020 and was completed in February 2021. The Board further conducted an internal evaluation in Spring
2021, led by the Chairman with the support of the NCGC and the CGCO. It included a review of the
effectiveness of the Board, its committees and individual directors. The directors’ views on a range of topics
were sought including inter alia, strategy, performance, reporting, risk and control, Board composition and
size, diversity, balance of skills, culture and dynamics, the Board’s agenda; the quality and timeliness of
information, training for directors etc. The review indicated an effective Board with a strong and diverse
composition of experiences.
The Chairman met with directors on a one-to-one basis to discuss their individual performance taking into
account their input, which was submitted in advance of the meetings. In each case, the Chairman assessed
each director as fully effective in his or her role on the Board whose contributions continue to be important to
the Company’s long-term sustainable success while continuing to demonstrate independence of mind.
Executive directors’ individual performance evaluation is assessed against particular KPIs set by the NCGC
undertaken at the same time as the performance management process for all employees and includes self-
assessment and a review and discussion by the NCGC, before final assessment by the Board.
The process in 2021 was as follows:
All non-executive members of the Board were invited to complete online questionnaires to self- assess
their own performance,
The Chairman performed an assessment of all the non-executive members who were on the Board
throughout 2020.
The SID chaired an executive meeting of the non-executives in the absence of the Chairman to assess the
performance of the Chairman.
The Self- Assessment of each Committee by its members.
A consolidated report on the findings of the full evaluation process was presented to the Board. The outcome
of the Board evaluation was positive, concluding that the effectiveness of the Board and its committees
continued to be enhanced year on year. Each director was assessed as being effective, with all directors
demonstrating commitment to their roles. The report was considered by the NCGC and collectively discussed
by the Board. The recommendations were intended to enhance the Board process, although they were not
material to the effectiveness of the Board. The Board accepted them and set up an action plan to incorporate
those recommendations. Taking into account the evaluation report, the Board considers that the effective
contribution of each of the individual directors and the Board as a whole is and continues to be important to
the long-term sustainable success of the Group. The Board also concluded that all the members of the Board
have appropriate qualifications; broad relevant experience; continue to be effective; and demonstrate
continuing commitment to the role.
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1. Board of Directors (continued)
1.3 Board Balance and Independence (continued)
1.3.2 Board Performance Evaluation (continued)
Key recommendations emanating from the internal assessment were aligned with the conclusions and
recommendation recorded by the independent consultant as follows:
The Board should continue to appoint new members to achieve a gradual renewal of the Board and its
Committees without compromising any of the skills and expertise currently on the Board. The Board would
benefit from another director with knowledge of IT or Digital Transformation or Cybersecurity, preferably a
woman, in order to achieve its target of 40%.
The focus of the Board should shift towards more oversight and less management support.
There is room for the Board to further integrate sustainability concerns in its decision-making process and
the development of its strategic plan.
The Board has determined that the ECCC should address sustainability and ESG factors in earnest to
support the Board in collaboration with the NCGC in its strategy development and decision-making.
The chairperson of each principal Board committee led the self-assessment process in respect of committee
performance through discussion with all committee members. The effectiveness of each of the four principal
committees was assessed as adequate. All non-executive directors provided feedback on their uptake of
committee work performed and the results were satisfactory.
The Chairman’s performance evaluation was carried out by the non-executive directors led by the SID and was
based on a discussion during an executive session of the non-executive directors (without the Chairman). The
Board concluded that Mr. Arapoglou continues to be a highly effective Chairperson who provides very strong
leadership to the Board and maintains a right balance between oversight and providing advice to the CEO. Mr.
Arapoglou combines extensive and relevant banking experience, inclusive leadership style and is open to new
ideas. He exercises effective time management and exhibits a Growth mind-set. Areas for enhancement are
his visibility within the Bank and the Cyprus market and ensuring more focused training for members on risk-
related issues. The Board confirmed its continued support for Mr. Arapoglou.
The external Board Performance Evaluation concluded in February 2021 by Nestor Advisors Ltd, a company
with no other connection to the Company, found the Board to be well-structured and composed. The Board
has the skills and knowledge necessary for directing and controlling the Bank. The Board members are very
well informed, have a thorough understanding of the Group’s business and are probing in controlling
management’s work.
The basis for the execution of this engagement was the relevant provision of the CBC Directive on Internal
Governance and the methodology which was followed included:
Document review of relevant constitutional documents and Board documentation.
Online questionnaire completed by each Board member.
Individual interviews including with the Company Secretary, the Chief Risk Officer (‘CRO’), Internal Audit
Director (‘IAD’) and Director of Compliance.
Meeting observation of several meetings at Board and Board Committee level.
Gap analysis against UK Code.
The firm’s judgement, supervisory and best practice considerations.
Key recommendations emanating from the independent consultants were as follows:
The Board should focus more on ESG matters;
The Bank should strengthen its KPIs for senior management to include ESG-related targets;
The strategy away-day should focus on the long-term vision of the Bank;
The Board should explore ways in which to ensure that the workforce voice is heard on the Board;
The monitoring of culture should become part of the Board’s long-term strategy agenda.
Progress was made on areas for enhancement identified during the previous internal performance evaluation
relating to more hands-on oversight of subsidiary objectives and business, ESG matters featuring on the Board
agenda, renewal of the composition of the Board, lessons learned and a continued forward-looking focus on
Group strategy.
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1. Board of Directors (continued)
1.3 Board Balance and Independence (continued)
1.3.2 Board Performance Evaluation (continued)
The directors are aware that in case they have material concerns about the overall governance of the Group,
these should be reported without delay to the Board and, if their concerns are not satisfactorily addressed, the
directors should report these concerns to the CBC.
1.3.3 Interaction with principal subsidiaries
There are close interactions between the material subsidiary boards and the Group Board and their respective
committees, including the requirement for appointments to material subsidiary boards to be approved by the
Group Board. The chairs of the subsidiary audit and risk committees submit an annual report to the respective
Group Board committees on the effectiveness of these subsidiaries and attend and present at the Group Board
committees annually an account of the subsidiary board committees. The chairpersons of the Company’s AC
and RC are invited, respectively, to participate occasionally in the subsidiary audit and risk committee
meetings as observers. In addition, the CGCO and other heads of control functions are invited to attend these
meetings as observers. The NCGC annually reviews and approves the Corporate Governance Guidelines for
Group Subsidiaries.
1.3.4 Loans to Directors and Other Transactions
Details of credit facilities to directors and other transactions with the Group are set out in Note 50 of the
Consolidated Financial Statements for the year ended 31 December 2021.
It is hereby confirmed that the credit facilities to Company directors (and related parties) or to its subsidiary
or associated company directors are granted in the normal course of the Company’s business, under normal
commercial and employment terms and with transparency. Furthermore, it is confirmed that all relevant cases
of bank facilities to Company directors and its subsidiary company directors are forwarded for approval to the
Board after the relevant proposal of the Risk Committee. The interested member of the Board is neither
present nor participates in the procedure.
All members of the Board complied with the relevant provisions of the CSE Code and the Banking Law as at 31
December 2021.
2. Internal Controls
The Board is responsible for the adequacy and effectiveness of the system of internal controls, corporate
governance and risk management framework of the Group. These ensure amongst others that:
The governance framework is effective, monitored and periodically assessed;
The compliance framework is appropriate;
The integrity and internal controls of the accounting and financial reporting systems, as well as the
compliance with relevant legal / supervisory requirements and reporting standards, are adequate;
The information security framework for the protection of confidential information is appropriate;
The process of taking appropriate steps to timely address any deficiencies is effective.
The system of internal controls, corporate governance and risk management framework have been designed
in accordance with the nature, scale and complexity of the Group’s operations, in order to provide reasonable
but not absolute assurance against material misstatements, errors, losses, fraud or breaches of laws and
regulations.
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2. Internal Controls (continued)
The overall system of internal controls, corporate governance and risk management framework of the Group
include amongst others:
A transparent organisational structure with clear reporting lines to Senior Management and the Board;
Board and executive committees with clear responsibilities;
Three lines of defence model for the effective risk management and compliance across the Group;
Formal policies and procedures;
Monthly reporting by business lines to enable progress to be monitored, trends to be evaluated and
variances to be acted upon;
Monthly meetings of committees to review performance;
Code of Ethics setting out the principles and expectations governing the behavior of all officers and
employees;
Code of Conduct setting out the standards expected of all officers and employees;
Whistleblowing policy, including processes and procedures, to be followed for independent investigation of
concerns raised by staff;
Anti-Bribery policy in line with the UK regulatory guidance as well as with ISO37001;
Conflicts of Interest policy;
Quarterly representations by all Divisions of the Bank to the CEO on the effectiveness of the system of
internal controls (policies, procedures and monitoring activities);
Annual representations by all control functions of the Bank (Compliance, Risk, Information Security) to the
CEO on effectiveness of the system of internal controls (policies, procedures, monitoring activities).
The Board confirms that, through the AC and the RC, it has conducted reviews for the year ended 31st
December 2021, regarding the effectiveness of the Group’s internal control and information systems, as well
as in relation to the procedures used to ensure the accuracy, completeness and validity of the information
provided to investors. The reviews covered all systems of internal controls, including financial, operational and
compliance controls, as well as risk management systems.
In carrying out their reviews, the AC and RC receive regular business and operational risk assessments,
regular reports from the Internal Audit Director, the Director of Compliance, the Chief Information Security
Officer and the Chief Risk Officer, other internal memos and external audit reports, as well as regulatory
reports.
The Board receives a confirmation on an annual basis by the CEO for the effectiveness of compliance, risk
management and information security system of internal controls. Additionally, the Board, through the AC and
RC, has received confirmation that executive management has taken or is taking the necessary actions to
remedy all significant weaknesses identified through the operation of the Company’s framework of internal
controls, corporate governance and risk management processes and to continuously modify or enhance the
system of internal controls, corporate governance and risk management framework as required by the Bank’s
current transformation.
Based on the internal audit work carried out in 2021, reasonable assurance is provided, with emphasis on
specific matters, on the design adequacy and operating effectiveness of the Group’s internal control
framework, corporate governance and risk management processes, for managing significant risks, according
to the risk appetite set by the Board of Directors. Emphasis is placed on the areas of Digitalisation,
Information Systems and Data Governance, which require management’s attention to further manage current,
as well as any future, risk exposures.
Overall, the Board of Directors through its committees, has reviewed the effectiveness of the system of
internal controls, corporate governance and risk management processes of the Group for the year ended 31st
December 2021 and confirms their effectiveness either through the effective design and operation of controls
or through mitigating factors that existed. The Board also confirms that it is not aware of any violation of the
Cyprus Securities and Stock Exchange Laws and Regulations.
The Group’s financial reporting process is controlled using documented accounting policies and procedures
supported by instructions and guidance on reporting requirements, issued to all reporting entities within the
Group in advance of each reporting period. The submission of financial information from each reporting entity
is subject to sign off by the responsible financial officer.
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2. Internal Controls (continued)
The internal control system also ensures that the integrity of the accounting and financial reporting systems,
including financial and operational controls and compliance with legal and supervisory requirements and
relevant standards, is adequate. The Group has in place an adequate financial statement closing process by
which transactions and events reflected in the Group’s accounting records are processed to produce the
financial statements, related disclosures and other financial reports which relies either on the effective design
and operation of controls or other mitigating factors where these were inefficient. Where from time-to-time
areas of improvement are identified these become the focus of management’s attention in order to resolve
them and thus strengthen the procedures that are in place. Areas of improvement may include the
formalisation of existing controls and the introduction of new information technology controls, as part of the
Company’s on-going digital journey.
Τhe Annual Report and Interim Report prior to their submission to the Board are reviewed and approved by
the ExCo. The Board, through the AC scrutinises and approves the financial statements, results,
announcements and the Annual Report and ensures that appropriate disclosures have been made. Detailed
papers are prepared for review and approval by the AC covering all accounting issues including presentations
and disclosures. This governance process enables both management and the Board to challenge the Group’s
financial statements and other significant disclosures before their publication.
The Bank has developed an Integrated Risk Identification Framework which provides for the identification,
evaluation and management of the principal risks faced by the Group. The Group is forward looking to ensure
emerging risks are identified. The Key Risk Matrix is thus updated and is approved by the RC and the Board
through the ICAAP process. The Board is responsible for determining the nature and extent of the principal
risks the Group is willing to take in achieving its strategic objectives and ensuring the maintenance of an
effective risk management and oversight process across the Group.
The Board approves the Group Risk Appetite Statement on an annual basis and receives regular updates on
the Group’s risk environment and exposure to the Group’s material risk types through the Risk Report
reviewed monthly. A consolidated risk report and risk appetite dashboard is regularly reviewed by the RC to
ensure the risk profile and mitigating actions are satisfactory. The key risks with their mitigant actions are
presented in Pillar 3 Disclosure Report.
The Board confirms that it carries out a robust assessment of both principal and emerging risks, including risks
that might threaten the Group’s business model, future performance, liquidity etc.
Business continuity risks are mitigated to ensure that the Bank has business resilience and continuity plans.
They also ensure that the Bank operates on an on-going basis and limits potential losses in the event of a
severe business disruption.
The Group’s risk management and internal control systems are regularly reviewed by the Board and are
consistent with the Guidance on Risk Management, Internal Control and Related Financial and Business
Reporting issued by the Financial Reporting Council and compliant with the requirements of Capital
Requirements Directive (CRD) IV. They have been in place for the year under review and up to the date of the
approval of the annual report.
Detailed information relating to Group risk management is set out in Notes 45 to 48 of the Consolidated
Financial Statements and the Additional Risk and Capital Management Disclosures section of the 2021 Annual
Financial Report.
2.1 Going concern
The Directors have made an assessment of the Group’s ability to continue as a going concern for a period of
12 months from the date of approval of the 2021 Consolidated Financial Statements. The Directors believe
that the Group is taking all necessary measures to maintain its viability and the development of its business in
the current economic environment. Detailed information relating to going concern is set out in Going Concern
of the Directors’ Report of the 2021 Annual Financial Report on page 32.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
294
2. Internal Controls (continued)
2.2 Group Code of Conduct and Whistleblowing Policy
The Group has set out the standards that are expected from all employees and directors of the Group in a
Code of Conduct along with guidance on how these standards should be applicable. The Code of Conduct and a
dedicated Code of Ethics are publicly available on the Group’s website.
The Group has a Whistleblowing Policy and relevant written procedure in place for all employees, including
directors, which is in accordance with international practice. The policy is reviewed annually. Its general
principles are:
Concerns in good faith, about wrongdoing or malpractice can be raised in confidence without fear of
victimisation, discrimination, disadvantage or dismissal;
Procedures for the reporting of any matters of concern are clearly provided. The persons concerned must
be able to bypass the main channels for whistleblowing if these prove inappropriate, and use the
anonymous reporting line;
Disclosures are managed in a timely, consistent and professional manner; and
The appointment of the chairperson of the AC, an independent non-executive director as a Whistleblowing
Champion with specific responsibilities.
The Board and CEO are committed to this policy, which encourages staff to raise concerns. Regular messages
from the CEO to staff to speak up and e-learning sessions, are addressed to all staff and the Board of
Directors to further increase awareness.
3. Other matters
The table below show attendance of the directors on the meetings of BOC PCL throughout 2021. One third of
the directors retire each year and offer themselves for re-election.
Board of Directors of BOC PCL 1/1/2021-31/12/2021
Name
Board of
Directors
AC
HRRC
NCGC
RC
AC/RC
Joint
TC
ECCC
Efstratios-Georgios Arapoglou
(Chairperson)
27/27
8/8
Lyn Grobler (Vice-Chair)
26/27
11/11
8/8
7/7
Maksim Goldman
26/27
10/11
27/29
7/7
6/6
Arne Berggren
25/27
15/16
8/8
7/7
7/7
Paula Hadjisotiriou
26/27
16/16
28/29
7/7
6/7
Michael Heger
27/27
15/16
11/11
7/7
5/6
Constantine Iordanou
1
2/2
1/1
Eliza Livadiotou
2
7/7
Panicos Nicolaou
27/27
Maria Philippou
26/27
11/11
8/8
5/6
Nicos Sofianos
3
21/22
12/12
24/24
5/5
Ioannis Zographakis
27/27
16/16
29/29
7/7
7/7
6/6
Total meetings
27
16
11
8
29
7
7
6
1 – Appointed 29 November 2021
2 Appointed 6 October 2021
3 Appointed 26 February 2021
3.1 Company Secretary
The Board appointed Mrs Katia Santis as the Company Secretary.
3.2 Internal Audit Director
The Board appointed Mr. George Zornas as the Internal Audit Director.
3.3 Corporate Governance Compliance Officer
The Board appointed Mr. Marios Skandalis as CGCO.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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295
4. Members of the Board of Directors
4.1 Non-Executive Directors
Efstratios-Georgios Arapoglou (Chairperson)
Mr. Arapoglou is an expert financial consultant. He has served as Chairperson and CEO of the National Bank of
Greece Group, Chairperson of the Hellenic Banks Association, Member of the Board of Eurobank and has held
senior management positions with Citibank and Chase Manhattan in the UK and with American Express in
Greece. Currently, he is Chairperson of the Board of Titan Cement, an international cement company listed on
the Athens Stock Exchange and of Tsakos Energy Navigation, a shipping company listed on the New York
Stock Exchange.
Mr. Arapoglou holds an MSc in Finance and Management from the University of Brunel, London, a BSc in Naval
Architecture and Ocean Engineering from the University of Glasgow and a BA in Mathematics and Physics from
the University of Athens.
He has extensive experience in international capital markets and in corporate, commercial and investment
banking in South East Europe, the UK, the Middle East and Africa.
Term of Office: External Appointment:
Appointed to the Board of BOC PCL Chairperson of the Board of Tsakos Energy Navigation
and the Board in June 2019 Chairperson of the Board of Titan Cement SA
EFG Hermes Holding SAE
Independent: Committee Membership:
Yes, on an ongoing basis. Chairperson of the Nominations and Corporate
(Mr. Arapoglou commits the appropriate time for Governance Committee
the Group’s business which does not exceed
55 days per year. He has no other remuneration
from the Group other than as Chairperson
of the Board and chairperson of the NCGC).
Lyn Grobler (Vice-Chair)
Lyn Grobler is an experienced executive with a strong track-record in technology and IT roles. She was
appointed Group Chief Information Officer (CIO) at Hyperion Insurance Group (now Howden Group Holdings)
in 2016. Prior to this she was Vice President and CIO Corporate Functions at BP where she led the
transformation of both the organisation and the digital landscape through introducing sustained change in
process, capability and technology, having held a variety of roles across IT and global trading over 16 years.
Before BP, she managed large scale global technology projects and strategies within banking and trading
based in both London and South Africa.
She holds an HND in computer systems from Durban University in South Africa and a National Diploma in
Electronic Data Processing from Cape Peninsula University (South Africa).
Mrs. Grobler has significant experience in IT and digital transformation and benefits from oversight experience
in a number of external directorships.
Term of Office: External Appointment:
Appointed to the Board of BOC PCL Chairwoman of the Board of Howden Group Services Ltd
and the Board in February 2017 Hx Group Ltd
Independent: Committee Membership:
Yes Chairperson of the Technology Committee
Member of the Human Resources & Remuneration Committee
Member of the Nominations & Corporate Governance
Committee
Member of the Insurance Business Advisory Board
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4. Members of the Board of Directors (continued)
4.1 Non-Executive Directors (continued)
Arne Berggren
Arne Berggren has been involved in corporate and bank restructurings, working for both the private sector as
well as for international organisations since the early 90s, starting with Nordea during the Swedish financial
crisis. This was followed by bank crises management and bank restructuring assignments in numerous
countries in Latin America, Eastern Europe and Asia, and more recently during the financial crisis in the
Baltics, Spain and Slovenia. He has been Head of Financial Restructuring and Recovery at Carnegie
Investment Bank AB and Swedbank AB and as CEO of Swedcarrier AB he led the restructuring of parts of
Swedish Rail.
Mr. Berggren has held numerous board positions in the financial and corporate sector, including a position on
the Board of Directors at LBT Varlik Yönetim AS and DUTB Ltd.
He is a graduate of the University of Uppsala, Sweden and has postgraduate studies at the Universities of
Amsterdam, Geneva and New York.
Arne Berggren has significant experience in corporate and bank restructurings, bank crises management and
risk management and has extensive experience in oversight from a number of directorships.
Term of Office: External Appointment:
Appointed Piraeus Bank Group
to the Board of BOC PCL in November 2014 Chairman of TBC Bank Group PLC
and the Board in October 2016
Independent: Committee Membership:
Yes Member of the Audit Committee
Member of the Nominations & Corporate Governance
Committee
Member of Technology Committee
Maksim Goldman
Maksim Goldman is Director of Strategic Projects at AO Complexprom since June 2018 and is responsible for
oversight of various projects and investments under management of the company. Previously, from July 2007
to May 2018 he was Director of Strategic Projects at Renova Group and had served as Deputy Chief Legal
Officer of the Group, responsible for implementing the investment policy and support of key mergers and
acquisitions transactions. From 2005 to 2007 he worked as Vice President and International Legal Counsel of
OAO Sual-Holding, which was the management company for OAO ‘SUAL’, the second largest aluminium
producer in Russia, and also participated in the creation of UC Rusal through combination of the assets of
Sual-Holding, Rusal and Glencore. From 1999 to 2005 he worked as an associate at Chadbourne & Parke LLP
in New York and in Moscow.
He holds a J.D. from the School of Law, University of California (Los Angeles). He also holds a Bachelor of Arts
degree in History from the University of California (Los Angeles).
Mr. Goldman has extensive experience in investments, business development and strategy formation and
benefits from oversight experience in a number of external directorships.
Term of Office: External Appointment:
Appointed United Manganese of Kalahari Ltd
to the Board of BOC PCL in November 2014
and the Board in October 2016
Independent: Committee Membership:
No Member of the Risk Committee
Member of the Human Resources & Remuneration Committee
Member of the Ethics, Conduct and Culture Committee
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4. Members of the Board of Directors (continued)
4.1 Non-Executive Directors (continued)
Paula Hadjisotiriou
Paula Hadjisotiriou is an experienced executive with a long career in senior management roles in financial
institutions. She started her accountancy career at Howard, Wade & Jacob before moving to Pricewaterhouse
Coopers. Following a six-year tenor at the Latsis Group of Companies as Deputy General Manager of Internal
Audit, she embarked on a career in banking, in Greece between 1990-2015, first with Eurobank Ergasias S.A
as Group Chief Financial Officer and then with National Bank of Greece as Deputy Chief Executive Officer &
Chief Financial Officer. Currently she serves as an advisor to the Latsis Group of Companies in the UK.
She is a Chartered Accountant (Institute of Chartered Accountants of England and Wales (ICAEW)).
Mrs. Hadjisotiriou has significant experience in financial institutions and benefits from oversight experience in
a number of external directorships.
Term of Office: External Appointment:
Appointed to the Board of BOC PCL Credit Suisse Bank (Europe) SA
and the Board in August 2018
Independent: Committee Membership:
Yes Member of the Audit Committee
Member of the Risk Committee
Member of the Technology Committee
Michael Heger
Michael Heger served as the general manager of finance and investment and as an independent senior advisor
for S.I.F. International Holding S.A., Luxembourg at its representative office in Vienna until the end of 2021.
Previously, from 2009-2012 he served as general manager and chief executive officer of Metal Trade Overseas
AG in Zug, Switzerland.
He began his career in 1980 as a manager in export finance and legal affairs for Waagner-Biro AG in Vienna,
Austria. Having spent two years at Waagner-Biro AG, he moved to UniCredit Bank Austria Group, where he
held various management positions from 1982 to 2002. Between 2001 and 2002, he served as general
manager and head of structured trade finance at Bank Austria AG. From 2002 to 2003, he served as the
deputy general manager and head of International division for Raiffeisenlandesbank Niederosterreich-Wien
AG. Dr Heger then joined MPH Management and Participation Holding S.A., a special purpose company for
equity participation in commercial and industrial companies, financial institutions and in property
developments as well as for financial and consulting services for domestic and international clients and
commodity trading, as the general manager of finance and investment and head of the representative office
from 2004-2009.
Dr Heger holds a doctorate in law from the University of Vienna and obtained a postgraduate degree in law
from the College of Europe in Bruges, Belgium.
He has extensive banking experience having spent more than 20 years in various senior positions in UniCredit
Bank Austria Group and has considerable strategic knowledge of industrial and commercial companies,
financial institutions and property developments.
Term of Office: External Appointment:
Appointed to None
to the Board of BOC PCL in June 2016
and the Board in October 2016
Independent: Committee Membership:
Yes Member of the Audit Committee
Member of the Human Resources and Remuneration Committee
Member of the Ethics, Conduct and Culture Committee
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4. Members of the Board of Directors (continued)
4.1 Non-Executive Directors (continued)
Constantine Iordanou
Constantine Iordanou has been Chairperson and Chief Executive Officer (CEO) of Arch Capital Group Limited,
since August 2003 and Director since January 2002 (retired in September 2019). Before joining Arch as one of
its founders in 2002, Mr Iordanou served in various capacities for Zurich Financial Services and its affiliates,
including as Senior Executive Vice President of group operations and business development of Zurich Financial
Services, President of Zurich-American Specialties Division, Chief Operating Officer and CEO of Zurich
American, and CEO of Zurich North America. Before joining Zurich in March 1992, he was President of the
commercial casualty division of the Berkshire Hathaway Group and Senior Vice President of American Home
Insurance Company, a member of American International Group and until recently Vice-Chairperson of NIPD
Genetics.
He holds an Aerospace Engineering degree from New York University.
Mr. Iordanou has significant experience in insurance business and benefits from oversight experience in a
number of external directorships.
Term of Office: External Appointment:
Appointed to the Board of BOC PCL Verisk Analytics
and the Board in November 2021 Vantage Group Holdings Ltd
Independent: Committee Membership:
Yes Member of the Technology Committee
Member of the Insurance Business Advisory Board
Maria Philippou (Chair of the Human Resources and Remuneration Committee)
Maria Philippou started her career as an HR Consultant with KPMG Greece, before moving to the Lambrakis
Press Group as HR Generalist. Having spent three years with Eurobank Ergasias S.A as Compensation &
Benefits Manager, in 2006 she moved to the Coca Cola Company Group, progressing through various roles
such as Rewards Manager and HR Business & Strategic Partner and finally as Global Talent & Development
Director until recently when she moved to Egon Zehnder.
She holds a degree in Business Administration from Nottingham Trent University and a Master of Science in
Human Resources Management from Brunel University.
Mrs. Philippou is an experienced executive in human resources and brings valuable skills to the Board in
people management.
Term of Office: External Appointment:
Appointed to the Board of BOC PCL None
and the Board in July 2018
Independent: Committee Membership:
Yes Chairperson of the Human Resources & Remuneration
Committee
Member of the Nominations & Corporate Governance
Committee
Member of Ethics, Conduct and Culture Committee
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4. Members of the Board of Directors (continued)
4.1 Non-Executive Directors (continued)
Nicos Sofianos (Chairperson of the Audit Committee)
Nicos Sofianos is a qualified Chartered Accountant, member of the Institute of Chartered Accountants in
England and Wales (ICAEW) and a member of the Body of Certified Public Accountants of Greece (SOEL). He
was a founding partner of Deloitte Greece and representative of the firm before the regulatory, supervisory
and fiscal authorities in Greece. In 2016 he retired with 40 years of audit and broader professional experience.
He holds an Honours degree in Chemical Engineering with a major in Mathematical Modelling and Computer
Simulation from the University of Manchester, UK.
Mr. Sofianos has extensive experience in the coordination of accounting, auditing, tax and consulting services
rendered to a wide range of companies covering nearly all sectors of industry and in particular the financial
services industry sector.
Term of Office: External Appointment:
Appointed to the Board of BOC PCL DoValue Greece SA
and the Board in February 2021 Aegean Airlines
Arcela Investments Ltd
Independent: Committee Membership:
Yes Chairperson of the Audit Committee
Member of the Risk Committee
Ioannis Zographakis (Chairperson of the Risk Committee & Senior Independent Director)
Ioannis Zographakis started his career in 1990 with Citibank in Greece as a Management Associate for Europe,
Middle East & Africa (EMEA). He then worked as the Deputy Treasurer and Treasurer for the Citibank
Consumer Bank in Greece, before moving to the USA in 1996 as the Director of Finance for Citibank
CitiMortgage. In 1997 he became the Financial Controller for Citigroup's Consumer Finance business in the US
and then he served as the Director of Finance and Acting Chief Financial Officer for the Consumer Assets
Division. From 1998 until 2004 he worked in the Student Loan Corporation (SLC), a Citigroup subsidiary and a
New York Stock Exchange traded company. He started as the Chief Financial Officer, became the Chief
Operations Officer and in 2001 he was named the Chief Executive Officer. In 2005 he moved back to Europe
as Citibank's Consumer Lending Head for EMEA and Head of UK Retail Bank. In 2006, he took the position as
Citibank's Retail Bank Head in Greece where he stayed until 2011, before moving back to Cyprus consulting on
financial services when requested. He has been a Director for the Student Loan Corporation in the US, a
Director for Tiresias (Greek Credit Bureau) and the Secretary of the Audit Committee, a Director and member
of the Audit Committee for Diners Club Greece, the Vice-Chair of the Citi Insurance Brokerage Board in Greece
and the Chair of the Investments and Insurance Supervisory Committee in Citibank Greece. He has also
served as non-executive Director for the National Bank of Greece group during 2018-2019.
Mr. Zographakis holds an MBA from Carnegie Mellon University in the USA and a Bachelor’s degree in civil
engineering from Imperial College in London.
He has an extensive background in corporate governance, business restructuring, crisis management, finance,
operation & technology in the banking industry, having spent more than 20 years in various senior operational
and financial roles in Citibank in the US, UK and Greece and on the Board of a number of financial entities.
Term of Office: External Appointment:
Appointed A. Eternity Capital Management Ltd
to the Board of BOC PCL in September 2013
and the Board in October 2016
Independent: Committee Membership:
Yes Chairperson of the Risk Committee
Chairperson of the Ethics, Conduct and Culture Committee
Member of the Audit Committee
Member of the Technology Committee
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4. Members of the Board of Directors (continued)
4.2 Executive Directors
Panicos Nicolaou (CEO)
Panicos Nicolaou joined the Bank in 2001. He started his career serving at various positions mainly in the
Corporate and Credit Risk departments. He was the Manager in the Restructuring and Recoveries Division from
April 2014 until June 2016 where he undertook and effectively managed a large portfolio of corporate
delinquent clients. From June 2016 until August 2019 he served as Director of Corporate Banking
Division supervising the Corporate Banking Centres throughout Cyprus, the International Corporate Banking
Centre & International Operations, as well as the Bank's Factoring Unit.
He holds a diploma (5-year degree) in Mechanical Engineering from National Technical University of Athens
(Metsovio Polytechnic), Greece and an MSc in Mechanical and Industrial Engineering from University of Illinois
at Urbana-Champaign, USA. He also holds a BSc in Financial Services from the School of Management, UMIST,
UK, and is an Associate Member of the Chartered Institute of Bankers, Institute of Financial Services, UK since
2004.
He is an experienced financial services professional having served in a number of senior roles in the Group.
Term of Office: External Appointment:
Appointed to the Board of BOC PCL Chairperson of the Association of Cyprus Banks
and the Board in September 2019 European Banking Federation
Independent: Committee Membership:
No None
Eliza Livadiotou (Executive Director Finance & Legacy)
Eliza Livadiotou began her career at the audit firm Arthur Andersen in Cambridge UK in 1995, where she
qualified as a Chartered Accountant. In 1999 she returned to Cyprus and joined Bank of Cyprus, as Assistant
to the Group Chief General Manager. In 2005 she moved to financial control where she held various roles in
the areas of Group reporting, tax, strategy and corporate finance.
In December 2013, she was appointed as Chief Financial Officer and in 2016 as Finance Director. In October
2021 she was appointed as Executive Member of the Board of Directors. In January 2022 her duties were
extended to include the management of the Legacy operations of the Group. In her current capacity she is
responsible for Finance, Treasury, Strategy and Corporate Finance, Investor Relations, ESG, Real Estate
Management, Restructuring & Recoveries, Regulatory Affairs, Procurement and Economic Research.
Mrs Livadiotou is a Member of Trustees of the Bank of Cyprus Oncology Centre. She is also a member of
the Banking Committee of the Institute of Chartered Accountants of England and Wales since March 2021.
She previously served as a member of the Financial Services Committee of the Institute of Certified Public
Accountants of Cyprus (2006-2018) which she chaired 2014-2016.
Mrs Livadiotou holds and MA (Hons) in Economics from the University of Cambridge.
She has significant experience as a financial services professional.
Term of Office: External Appointment:
Appointed to the Board of BOC PCL None
and the Board in October 2021
Independent: Committee Membership:
No None
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301
5. Board Committees
The Board is assisted in the discharge of its duties by a number of Board committees whose purpose is to
consider in greater depth than would be practicable at Board meetings, matters for which the Board retains
responsibility. It is therefore crucial that effective linkages are in place between the committees and the Board
as a whole given that it is impractical for all independent directors to be members of all the committees.
Mechanisms are in place to facilitate these linkages including ensuring that there are no gaps or unnecessary
duplication between the remit of each committee and appropriate cross-membership between committees
where necessary. Alongside cross-membership the chairperson of each committee reports on matters
discussed during committee meetings to the subsequent scheduled meeting of the Board. The minutes of all
meetings of Board committees are circulated to all directors for information and formally noted by the Board.
Papers for all Board committees are also made available to all directors, irrespective of membership. Such
circulation of minutes and papers is restricted should there be a conflict of interest or issues of personal
confidentiality.
The statutory committees are the Audit Committee (‘AC’), the Risk Committee (‘RC’), the Nominations and
Corporate Governance Committee (‘NCGC’) and the Human Resources and Remuneration Committee (‘HRRC’).
Each committee operates under terms of reference approved by the Board. The core responsibilities of each
committee are described in the table above. The remit of each committee is set out in brief in the table, and
more information about the committees and their work can be found further below. The terms of reference of
the committees are reviewed annually by the relevant committees and by the Board, are based on the
relevant provisions of the CSE and UK Codes and the CBC Directive on Internal Governance (where applicable)
and are available on the Group’s website (www.bankofcyprus.com.cy/group) or by request to the Company
Secretary.
In addition to the principal committees, the Board has in place a Technology Committee (‘TC’) which is
mandated to drive the digital transformation of BOC PCL and an Ethics, Conduct and Culture Committee
(‘ECCC’) to support it in promoting its collective vision of values, conduct and culture and to oversee
management effort to foster a culture of ethics and appropriate conduct within the Group.
Each of the committees’ structure facilitates open discussion and debate, with steps taken to ensure adequate
time for members of the committees to consider proposals which are put forward. In carrying out their duties,
Board committees are entitled to take independent professional advice, at the Group’s expense, where
deemed necessary or desirable by the committee members.
The overall responsibility for approving and monitoring the Group’s strategy, risk appetite and policies for
managing risks lies with the Board, which exercises this responsibility through two of its main committees,
namely the RC and the AC.
BOC PLC
Board of Directors
Nominations &
Corporate Governance
Committee
Reviews the
composition of the
Board
Recommends the
appointment of new
Directors
Considers succession
plans for key Board and
ExCo positions
Oversees the annual
Board effectiveness
review
Human Resources &
Remuneration Committee
Sets overarching principles
and parameters of
remuneration across
the Group
Considers and approves
remuneration for the Chair
Vice-Chair, Executive
Directors, other senior
executives and certain
Group employees
Oversees remuneration
issues
Audit Committee
Assesses the integrity
of the Group’s financial
statements
Evaluates the
effectiveness of the
Group’s internal controls
Scrutinises the activities
and performance of
internal and external
auditors
Reviews and monitors
the Group’s
whistleblowing policies
Risk Committee
Monitors and recommends
the Group’s risk appetite
Monitors the Group’s
financial, operational,
conduct and legal risk
profile
Oversees conduct and the
leadership of the Risk and
Information Security
functions
Considers and reports
on key financial and non-
financial risk issues
Technology
Committee (Non
statutory)
Oversight of the overall
role of technology in
executing the business
strategy of the Technology
Committee
Ethics, Conduct and
Culture Committee
(Non statutory)
Promoting its values,
conduct and culture,
oversees
management's
efforts to foster a
culture of ethics and
appropriate conduct
and the how the
Group promotes
customer-centric
culture
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Annual Corporate Governance Report 2021
302
5. Board Committees
5.1 Nominations and Corporate Governance Committee
As at 31 December 2021 the NCGC comprised of the Chairperson of the Board and three other independent
non-executive directors. Its composition is fully compliant with the CSE Code, the UK Code and the CBC
Directive on Internal Governance. The Chairperson of the Board chairs the Committee, except when the NCGC
is dealing with the appointment of a successor to the role of Chairperson.
Biographical details, including each member’s background, experience and independence status are set out in
section 4 of this report.
The Committee met 8 times in 2021. The Chairperson and members of the Committee together with their
attendance at meetings are shown below. The CEO attends meetings as appropriate. The NCGC meets
annually with no management present.
Member attendance in NCGC meetings* in 2021:
Efstratios-Georgios Arapoglou (Chair) 8/8
Lyn Grobler 8/8
Arne Berggren 8/8
Maria Philippou 8/8
* The number of committee meetings at BOC PCL level were 8 during 2021. The attendance of these meetings can be found
on page 294
The key responsibilities of the NCGC are set out in its terms of reference, which are available on the Group’s
website (www.bankofcyprus.com.cy/group) and are reviewed annually and approved by the Board.
The role of the Committee is to ensure that the Board is comprised of members who are best able to discharge
the duties and responsibilities of directors and to support and advise the Board in relation to:
Board recruitment (including regularly reviewing, reporting on and taking into account, when making
further appointments, the composition and effectiveness of the Board);
Considering and making recommendations to the Board in respect of the appointment of Key Function
Holders other than heads of control functions; and
Reviewing succession planning for directors and senior management, and overseeing the development of a
diverse pipeline for succession.
The Committee also:
keeps the Board's governance arrangements under review and makes appropriate recommendations to
the Board to ensure that such arrangements are consistent with best corporate governance standards and
practices in place;
oversees subsidiary governance to ensure that appropriate and proportionate governance arrangements
are in place for Group subsidiaries;
provides oversight to the Group’s sustainability strategy aimed at achieving present and future economic
prosperity, environmental integrity and social equity for the Group and its stakeholders; and
supports the Board in fulfilling its oversight responsibilities relating to the Bank’s strategy and supports the
development and implementation of the Strategic Plan.
The matters considered and the actions taken by the NCGC during the year are set out in the following table.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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303
5. Board Committees (continued)
5.1 Nominations and Corporate Governance Committee (continued)
Matters considered and action taken by the NCGC in 2021
Board and
committee size
and composition
Structure and composition of the Board;
Succession Planning;
Review of re-appointment of members.
A discussion on the composition of the
Board especially around directors reaching
the nine year limit for independence status.
Search for potential candidates of particular
skillset.
Executive
Succession
Planning
Succession Planning of CEO;
Approval of Material Risk Takers (‘MRTs);
Appointment of Key Function Holders.
A discussion on identifying suitable internal
candidates.
A deep dive of executive succession
planning for key roles was undertaken,
which evidenced positive focus and
development of key talent.
Annual Board
effectiveness
Review
Annual Internal Board Performance Evaluation
including Board committees and individual directors;
Review and discussion of External Board Evaluation;
Action Plan for implementing the recommendations
of the 2021 Board evaluations.
The internal Board Performance Evaluation
of 2021 reported a positive outcome with
regard to the Committee’s continued
effectiveness.
The external report by Nestor Advisors Ltd
cited how well-structured, composed and
run the Board is and made several
recommendations for further enhancing its
effectiveness.
Disclosure &
Governance
Review and approval of revision to the Corporate
Governance Framework of the Group;
Approval of the 2021 action plan for corporate
governance compliance with best practices;
Review and recommendation for approval to the
Board of the Group Corporate Governance Policies;
Review of the Annual Corporate Governance Report;
Review of the quarterly corporate governance
reports;
Approval of the report on compliance with the CSE
Code and the UK Code;
Committee Terms of Reference;
Discussion on the formation of a Technical Advisory
Board.
Annual review of the Corporate Governance
Framework, to incorporate requirements of
recent regulatory developments.
A review of the Board Nominations Policy to
ensure that targets set for 40% female
representation on the Board are still
appropriate and achievable.
The Committee approved changes to
internal policies and its Terms of Reference
that required revising to ensure continued
compliance with all applicable corporate
governance requirements and the newly
issued CBC Directive on Internal
Governance Oct 2021.
Given the importance of Digital
Transformation for the Bank the NCGC
discussed the possible formation of a
Technical Advisory Board which will provide
direction on what the Bank’s vision of its
future with regards to technology should
be.
Independence
and time
commitments
Review of:
Skills, knowledge and expertise;
Independence of non-executive members;
Review of potential conflicts of interest of
directors;
Appointments to other directorships;
Attendance records and time commitment.
The NCGC assessed cases where directors
of the Board and of the material
subsidiaries were nominated for
appointment to boards of third companies
for possible conflict of interests, time
commitment issues and limits to the
number of directorships a director can hold
at any time.
All non-executive directors remained
independent as to character and
judgement. All directors are considered to
have appropriate roles including capabilities
and skills.
During the annual performance evaluation
each non-executive director and his/her
ability to continue meeting their time
commitments was assessed.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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304
5. Board Committees (continued)
5.1 Nominations and Corporate Governance Committee (continued)
Matters considered and action taken by the NCGC in 2021 (continued)
Sustainability
Review of ESG ratings by institutional investor
advisory services and discussion on improving
certain factors;
Approval of the Annual Sustainability Report.
Updated on the action plan of the
Sustainability Committee and recommended
approval of the sustainability strategy to
the Board.
Subsidiary
oversight
Review and approval of the revision of the Corporate
Governance Guidelines for Group Subsidiaries;
Approval of appointment of directors of subsidiaries
to the boards of third entities.
Alignment of the corporate governance
framework of the subsidiaries with that of
the Group taking into consideration
proportionality.
Appointment of a subsidiary NED to the
board of a third entity and discussion of
potential conflicts of interest.
As part of the process of succession planning and determining the appropriate range and mix of skills required
to maintain an effective Board, Deloitte was appointed in early 2022 to assess the skillset of the Board against
required and desirable Board competencies and provide recommendations for bridging any gap identified for
an appropriate range and depth of skills and experience. More information will be reported in the 2022
Corporate Governance Report. The Committee continued to keep under review the structure, size and
composition of the Board and its committees. In 2021 it devoted considerable time to succession planning and
skillset requirements to bolster the Board’s effectiveness, having regard to the need to address the strategy of
the Bank for Digital Transformation. A scoping workshop was run with the external consultants who would
assist in the search for potential candidates for the Board, by collecting a pool of individuals with appropriate
characteristics and skillset, sufficient calibre and suitable for appointment to the Board as non-executive
members to enhance the Board’s overall effectiveness, facilitating the Board by acting with integrity, leading
by example and promoting the desired customer-focused culture.
Having been delegated responsibility for oversight of the Group’s sustainability strategy, the Committee
received updates from the Sustainability Committee on the action plan in place and the strategy and
recommended approval of the strategy to the Board.
The chairperson of the Committee reported to the Board after each meeting to ensure all directors were
informed of the Committee’s activities. The Committee’s terms of reference can be found at
www.bankofcyprus.com.cy/group.
The CEO and the CGCO are invited to attend meetings where the agenda items are relevant to them and their
attendance is requested by the Committee. The Committee ensures plans are in place for the selection,
appointment and orderly succession of executive directors and senior managers. The Group carries out a
review of the ongoing suitability of ExCo members on an annual basis, whereby they are required to confirm
any changes in their circumstances in respect of their compliance with the CBC Directive on Suitability. Any
changes in circumstances disclosed are assessed and their materiality determined. Following the review of
2021, certain changes to directorships were reported. The Board concluded that each of the senior
management members has the requisite standard of fitness, probity and financial soundness to perform
his/her functions effectively.
The Committee keeps under review updates to corporate governance regulations and requirements and briefs
the Board on their effective implementation. The Committee oversaw the 2020 internal review of the
effectiveness of the Board and its Committees which concluded in March 2021 and the external review which
concluded in February 2021.
5.1.1 Diversity
The Group recognises the benefits of having a diverse Board and workforce, creating a work environment
where everyone has an opportunity to fully participate in creating business success, and where each person is
valued for their distinctive skills, experiences and perspectives. In reviewing Board composition and identifying
suitable candidates, the NCGC considers the benefits of all aspects of diversity including the skills identified as
relevant to the business of the Group, industry experience, nationality, gender, age and other relevant
qualities, in order to maintain an appropriate range and balance of skills, experience and background on the
Board.
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5. Board Committees (continued)
5.1 Nominations and Corporate Governance Committee (continued)
5.1.1 Diversity (continued)
All Board appointments are made on merit, in the context of the skills, experience, independence and
knowledge which the Board as a whole is required to have to be effective and the diversity benefits each
candidate can bring to the overall board composition.
The Group’s approach to Board diversity is set out in full in the Board Nominations Policy which can be found
online at https://www.bankofcyprus.com.cy/globalassets/who-we-are/our-governance/group-board-nominations-policy.pdf.
The Policy recognises that a truly diverse Board will include and make good use of the differences in skills,
experience, background, race, gender and other distinctions brought by each director, with such differences
being considered in determining the optimum composition of the Board.
Non-executive members of the Board possess a wide range of skills, knowledge and extensive experience
acquired from executive and/or non-executive appointments as directors of other companies, that combine to
provide independent perspective, insights and challenge needed to support good decision-making and
effective board dynamics. The effectiveness of the Board depends on ensuring the right balance of directors
with banking or financial services experience and broader commercial experience. Directors bring their
individual knowledge, skills and experience to bear in discussions on the major challenges facing the Group.
The participation of executives on the Board enhances the banking expertise of the Board and ensures that the
Board is provided with direct, precise and up-to-date information about significant issues concerning the
Group.
Following review in 2021, the NCGC determined that the skills profile of the Board, either academically or
through professional experience was appropriate and relevant to the business of the Group including inter alia,
banking, insurance, manufacturing, audit and accounting, economics, risk management, dealing with
competent authorities, strategy and business models, legal and consultancy services, information technology
and human resource management. The NCGC further recognised that a candidate with strong background in
IT and or cybersecurity could enrich the Board composition given the strategic importance of digitisation of the
Group.
0 2 4 6 8 10 12 14
Banking & Financial Markets
Audit /Accounting/Economics
Legal/Regulatory Framework
Global Markets
Insurance/Material Activities of the Group
Strategy & Business Models
Risk Management/Internal Controls
Governance/Oversight
Knowledge of Competent Authorities
Information Technology/Security
Managerial Skills
Human Resources
Number of Directors
Skills, Knowledge and Expertise
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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5. Board Committees (continued)
5.1 Nominations and Corporate Governance Committee (continued)
5.1.1 Diversity (continued)
During 2021, the NCGC reviewed the Board Nominations Policy which aims to maintain diversity with
appointments based on merit in the context of the skills and experience required. The Group was aiming to
achieve and maintain 40% female representation and has been implementing an action plan approved by the
NCGC describing all key intervening milestones leading to the accomplishment of this target. The changes in
the composition of the Board in 2021 maintained diversity at 33.3%. The Board remains committed to
achieving and maintaining its set target the earliest possible.
The Board also places high emphasis on ensuring the development of diversity in the senior management roles
within the Group. A number of Group policies ensure unbiased career progression opportunities. The Code of
Conduct similarly ensures equal opportunities to all members of staff and treats diversity with fairness and
respect aiming to provide fair treatment for everyone at work. A primary ESG target approved under the ESG
strategy by the Board is ≥30% women in Group’s management bodies by 2030.
5.2 Human Resources and Remuneration Committee
On 31 December 2021, the Committee comprised of three independent non-executive members and one non-
independent non-executive member. Its composition complied with the requirements of the CSE Code, and
the CBC Directive on Internal Governance, but not the UK Code which requires that all members are
independent. The Board considers that at least one member of the Committee possesses appropriate
knowledge and expertise on Human Resources (‘HR’) and remuneration issues and that the chair has at least
one year prior committee experience.
The members of the Committee collectively possess appropriate knowledge, expertise and professional
experience concerning remuneration policies and practices, risk management and control activities, including
the mechanism for aligning the remuneration structure to the Group’s risk and capital profile. The diverse
backgrounds of the members of the Committee provide a balanced and independent view on remuneration
matters.
In order to ensure that remuneration policies and procedures are consistent with effective risk management,
there is common membership between the HRRC and the RC.
Biographical details, including each member’s background, experience and independence status are set out in
section 4 of this report.
The Committee held 11 meetings in 2021. The chair and members of the Committee together with their
attendance at meetings are shown below. The CEO and the Chief of Staff were invited to attend meetings as
appropriate.
8
4
Gender Diversity at Board
level
Male Female
4
4
4
Age Range at Board level
45-54 55-64 66-74
5
4
3
Tenure of Board members
0-3 yrs 3-6 yrs 6-9 yrs
15
5
Gender diversity in the
Executive Committee and a
wider leadership group
Male Female
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307
5. Board Committees (continued)
5.2 Human Resources and Remuneration Committee (continued)
Member attendance in HRRC meetings* in 2021:
Maria Philippou (Chair) 11/11
Michael Heger 11/11
Lyn Grobler 11/11
Maksim Goldman 10/11
* The number of committee meetings at BOC PCL level were 11 during 2021. The attendance of these meetings can be
found on page 294.
The key responsibilities of the HRRC are set out in its terms of reference, which are available on the Group’s
website (https://www.bankofcyprus.com.cy/group/who-we-are/our-governance/group-committees/) and are
reviewed annually and approved by the Board.
The role of the Committee is:
To oversee that the Group is equipped with the human capital at the right size and with the right skill mix
necessary for the achievement of its strategic goals. It is imperative for the Group to employ the
appropriate forward-looking, commercially minded, human resources that would promote digital
transformation and continuous innovation;
To oversee that the Group is equipped with the organisational capital to be able to effect continuous
improvement and elicit the right behaviour which would lead to the desired outcome;
To oversee that the Group is equipped with the information capital and the technology necessary to
facilitate process improvements that will create a comparative advantage in the market;
To regularly review, agree and recommend to the Board the over-arching principles and parameters of
Compensation & Benefits policies across the Group and to exercise oversight for such issues;
Within the over-arching principles and parameters recommended by the Committee and approved by the
Board as referred to above, to review and set the remuneration arrangements of the executive directors of
the Company, Senior Management and the Group Remuneration Policy, bearing in mind the EBA
Guidelines on remuneration policies under CRD V of 2021, the CBC Directive on Internal Governance, the
UK Code and any other applicable statutory or regulatory requirements.
The HRRC oversees the HR initiatives that foster employee engagement, such as the application of a holistic
internal communication programme, the implementation of the ‘Well-at-Work’ initiative, an employee
wellbeing / care programme and the application of fair and transparent recognition initiatives across the
Group.
The HRRC holds delegated responsibility from the Board of Directors for the oversight of the Group-wide
Remuneration Policy with specific reference to the senior management, heads of, and senior officers in,
internal control functions and those employees whose activities have a material impact on the Group’s risk
profile. The HRRC is responsible for overseeing the annual review of the Group Remuneration Policy with input
from the RC and relevant risk management functions which is then proposed to the Board for ratification. In
addition, the Board, through the Committee, is ultimately responsible for monitoring the implementation of the
Group Remuneration Policy.
The Group has been operating under a number of remuneration restrictions such as no granting of variable
pay which cover all executive directors, senior management and employees. More information about the role
of the Committee in respect of the Remuneration Policy can be found in the Remuneration Policy Report on
page 324.
The remuneration of non-executive directors is determined by the Board following the recommendation of the
Chairperson of the Board while the remuneration of the Chair and Vice-Chair is recommended by the HRRC.
Both are subject to approval by the shareholders. No director is involved in decisions regarding his/her own
remuneration.
The Committee exercises oversight of negotiations with the labour union in Cyprus and provides guidance and
support to management. It advises the Board on the approval of the collective agreements and reviews the
framework of industrial relations and collective agreements to ensure they are relevant to best practices and
conducive to good performance.
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5. Board Committees (continued)
5.2 Human Resources and Remuneration Committee (continued)
The Committee reviews any voluntary retirement / separation schemes for BOC PCL and material subsidiaries
in cooperation with the Human Resources Division (‘HRD’) and succession planning for all divisions and
subsidiaries for senior management throughout the Group. It also reviews the annual training plan as
prepared by HRD and approved by the CEO and ensures that it creates and/or develops the right
competencies and behaviours that are necessary for meeting the Group’s strategic priorities.
The Committee reviews and approves the content of any resolutions submitted for approval at the general
meeting of the shareholders. These resolutions are prepared by the Company Secretary in cooperation with
the Group’s legal advisers in accordance with Annex 3 of the CSE Code and concern possible plans for the
compensation of members of the Board in the form of shares, share warrants or share options.
Matters considered and action taken by the HRRC in 2021
Annual
Remuneration
Review
Annual review and approval of the
Remuneration Policy;
NED remuneration survey;
Introduction of merit pay as a percentage
of fixed salary to encourage high
performance from 2022;
Salary proposals for key senior
management.
Salary increases to key executive team members to
align with market.
NED remuneration compared well with peer banks
but Chairman remuneration was significantly lower.
– Recommendation to the Board to increase the
Chairman’s remuneration.
Discussion took place on the framework of variable
pay, but decision was postponed for later in 2022.
Disclosure and
Governance
Review of the Remuneration Policy Report
in the Annual Report;
Review of the Terms of Reference of the
Committee;
Monitoring of the development of payroll
cost;
Review of a number of HR Policies;
Ask the Board.
The Report was reviewed and approved.
The Committee recommended amendments to its
terms of reference to ensure continued compliance
with evolving corporate governance requirements
and compliance with the CBC Directive on Internal
Governance.
A Board communication initiative with staff through
emails.
The internal Board Performance Evaluation of 2021
reported a positive outcome with regard to the
Committee’s continued effectiveness.
Human
Resources
Review
Monitoring of the Bank’s headcount and
payroll cost evolution as well as the
external recruitment process;
Review of the targeted Voluntary Exit Plan
(‘VEP’);
The Disciplinary Code;
Review of Talent Management and
Feedback from the Talent Committee;
Spans & Layers exercise;
Gender Pay Gap;
Specialised recruitments.
The Committee reviewed the Group’s plan which
continued to identify obsolete positions emanating
from digital transformation efficiencies, closure of
branches, sales of loans, etc. Consultation with the
labour union took place to ensure its on-boarding
with the targeted VEP.
The HR strategy in identifying, managing and
mentoring talent was reviewed and discussed.
An initiative to reduce the layers of hierarchy for a
more agile organisation and faster decision-making
and more efficient management process.
An exercise to determine gender pay gap recorded
mean and median gap of 14.5% and 9.9%
respectively, indicating that women hold fewer
senior positions but the Bank compares well with
other banks.
Specialised recruitment, mostly for IT and
Information Security positions for which no internal
talent was identified.
Training
Review of the training plan of staff for the
year.
The training plan was reviewed to ensure it is
appropriate and aligned to the strategy of the
Group.
Engagement
with Labour
Union
Close monitoring of the progress of the
negotiations and recommendation to the
Board for approval with regards to renewal
of the Collective Agreement.
The Bank reached agreement with labour union
representatives for the renewal of the collective
agreement. Validation of the new grading system,
promotions and resulting salary increases to staff.
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309
5. Board Committees (continued)
5.2 Human Resources and Remuneration Committee (continued)
Matters considered and action taken by the HRRC in 2021 (continued)
Performance
Appraisal,
Development
and Succession
Review of the Performance Appraisal results and
main findings;
360
0
Assessment of Senior
Management;
Management Practices Survey;
Review of the Performance Appraisal Policy.
There is an appropriate process in place to
assess the performance of staff and Senior
Management.
The Board is informed of the Appraisal results
when reviewing the succession plan.
Reviewed the findings of the Management
Practices Survey whereby subordinates assess
their managers across 12 management
dimensions and managers self-assess - areas for
focus are Managing Change and Motivation.
The Policy was reviewed and updated to include
the active involvement of the Board in the
appraisal process of Senior Management, from
setting performance targets to appraising
performance.
The Bank’s Succession Plan was considered by
the HRRC and the NCGC at a joint meeting.
Human
Resources
Practices
HR Strategy;
HRD update Report (exit statistics, disciplinary
cases, financial aid, care leave, vulnerable cases
in view of pandemic);
Internal Customer Satisfaction Survey – Action
plan;
Staff Opinion Survey;
Organisational Health Index (OHI);
Flexible Workplace Practices;
Covid-19 Pulse Survey;
Update on Risk Culture project;
Various initiatives introduced by HRD to align
culture with strategy were reviewed and
commented on by the Committee.
For high risk vulnerable employees who stayed
at home as per governmental guidelines, the
Bank agreed to top-up the government’s
allowance.
Action Plan to improve participation rate in the
surveys.
A long-term approach in implementing remote
working in parallel to the Transformation
Project.
Well at Work website- a tailor-made web page,
created in cooperation with the Bank’s external
medical partners, with a specialised section on
COVID-19 that includes general advice,
information, videos Q&As etc.
Ongoing project as part of the Bank’s efforts of
enhancing its risk and control culture.
Priorities for the HRRC in 2021 were the nurturing of internal communication with staff, the signing of the
collective agreement, the digital learning programme for talent management and the Project Ethos with
emphasis on enhancing risk and ethics culture.
The Board is informed through the HRRC on staff surveys and is updated on progress in implementing actions
in response to staff feedback. An Organisational Health Index (OHI) Survey was run for the first time in 2021
and it will be repeated on an annual basis, aiming at evaluating the organisation’s health while identifying
areas of focus and improvement going forward. The Internal Customer Satisfaction Survey allows employees
to evaluate the level of service they receive from various internal departments of the Bank. In 2021 several
control and support functions were evaluated.
The Committee considered and recognised the strength of the mechanisms in place to engage with and hear
from employees. Methods of gathering and documenting workforce views and considering how themes and
viewpoints of the workforce would be presented to and considered by the Board for discussion and debate
were assessed, to encourage a meaningful dialogue between the Board and the workforce on a timely basis.
Further to the Ask the CEO initiative introduced in 2020, the initiative Ask the Board was introduced in August
2021 and there was modest use of the means to communicate directly with staff. Once staff recognise that
their views are considered and actions are taken, more usage of this means of communication is expected.
Internal communication is further encouraged through regular one-way communication from the Bank to
employees through the employee portal, emails to all staff and the CEO corner to keep employees engaged.
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310
5. Board Committees (continued)
5.2 Human Resources and Remuneration Committee (continued)
The Board agreed to adopt an alternate approach to the workforce engagement methods set out in the UK
Code. The primary reason for taking a different approach is that there is regular interaction with the labour
union which represents 97.7% of staff. Remuneration within the Group is based on collective agreements
including remuneration of executive management except that of CEO which is a fixed term contract and there
are restrictions on variable remuneration for all employees including executive directors. The Remuneration
Policy covers all employees including executive directors.
The information from surveys, the whistleblowing process, other information reported from the Working Team
on culture, disciplinary actions, grievances themes etc., were reported to and discussed by the HRRC and the
ECCC before being reported to the Board. It is hereby confirmed that the workforce engagement method that
the Board has settled on is through internal communication initiatives facilitated by the HRD and reported to
the Board.
The Transformation Programme, initiated to further specialise, further modernise and reduce the Bank’s
operating costs, is of paramount importance in safeguarding the Bank’s viability. Further reorganisation and
the abolition of a number of jobs/positions in 2021 allowed the Group to proceed with a similar to 2020
targeted Voluntary Exit Plan (‘VEP’). The VEP allowed 102 employees to depart smoothly, in receipt of a
compensation.
Further information on the role of the Committee is presented in the Remuneration Policy Report, on page 324
of this report.
The chair of the Committee reported to the Board after each meeting to ensure all directors were fully
informed of the Committee’s activities.
5.3 Audit Committee
As at 31 December 2021, the AC comprised of five independent non-executive directors. The Board considers
that the AC’s members have an appropriate mix of skills and experience and have collectively recent financial
experience and competence relevant to the banking and financial services sector in which the Group operates.
The Board further believes that Nicos Sofianos, Ioannis Zographakis and Paula Hadjisotiriou have specialised
knowledge and experience in the application of internal control procedures and accounting issues relevant to
the Committee and have significant, recent and relevant financial experience and can be regarded as Audit
Committee financial experts. The Committees’s composition is fully compliant with the CSE Code, the UK Code
and the CBC Directive on Internal Governance.
Biographical details, including each member’s background, experience and independence status are set out in
section 4 of this report.
The Executive Director Finance & Legacy, Internal Audit Director, Director of Compliance, the statutory
auditors and the Company Secretary regularly attend the Committee meetings. As part of and in addition to
each scheduled meeting the Committee held members-only meetings. The Committee held 16 meetings
during 2021. The chairperson and members of the Committee together with their attendance at meetings are
shown below. Nicos Sofianos, Ioannis Zographakis and Paula Hadjisotiriou are also members of the RC.
Michael Heger is also a member of the HRRC. Such common membership facilitates effective governance
across all finance and risk issues. Agendas are aligned and overlap of responsibilities is avoided.
Member attendance in AC meetings* in 2021:
Nicos Sofianos (Chair since 26 February 2021) 12/12
Ioannis Zographakis (Chair until 25 February 2021) 16/16
Arne Berggren 15/16
Paula Hadjisotiriou 16/16
Michael Heger 15/16
* The number of committee meetings at BOC PCL level were 16 during 2021. The attendance of these meetings can be
found on page 294.
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311
5. Board Committees (continued)
5.3 Audit Committee (continued)
The key responsibilities of the AC are set out in its terms of reference, which are available on the Group’s
website (www.bankofcyprus.com.cy/group) and are reviewed annually and approved by the Board.
The Committee, inter alia, is responsible for:
The appropriateness and completeness of the Group's system of internal controls and information
systems;
Ensuring that the system of internal controls is adequately resourced;
Monitoring the integrity of the Group's financial statements and related announcements (including
significant financial reporting judgements contained in them) and the financial reporting process;
Advising the Board on the accuracy and fairness of the annual reports and accounts;
Monitoring the effectiveness and operations of the internal audit function and the compliance function;
Overseeing all matters relating to the relationship between the Group and the external auditors;
Monitoring the effectiveness of the Group's whistleblowing procedures;
and making recommendations to the Board on such matters.
The role of the Committee is fundamental to ensuring the integrity and accuracy of the Company’s financial
reporting. Good, open relationships between the Committee, the EDFL, the Internal Audit Director and the
Director of Compliance as well as the external auditors, are essential to adding value to the organisation. This
is achieved by holding management accountable for the implementation of all recommendations (internal and
external). In addition to providing assurance within the governance and accountability structures of the Group,
it is essential that the Committee contributes, delivers results and adds value to the Group.
The AC considered the results of the deep dives carried out on the availability and continuity of IT Services
and the actions taken by the Bank on monitoring customers exiting the Covid-19 moratorium. Further the AC
considered the following key significant accounting and other related issues in its review of the financial
statements for the year ended 31 December 2021. In addressing these issues, the AC considered the
appropriateness of management’s judgements and estimates and where appropriate, discussed those
judgements and estimates with the external auditors.
Matters considered and action taken by the AC in 2021
External
Reporting
Review and recommendation for approval of
the annual and interim reporting;
Review and approval of the quarterly
financial results;
Review and approval of the Group’s existing
accounting policies;
Endorsement of the going concern
assessment for the purposes of the basis of
preparation of the financial statements.
The AC considered management’s assessment of
the appropriateness of preparing the financial
statements of the Group on a going concern basis.
Matters considered in making this assessment
included the performance of the Group, profitability
projections, funding and capital plans under base
and stress scenarios.
The considerations assessed by the AC in relation
to the going concern assessment are also set out in
Note 3 of the Consolidated Financial Statements.
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312
5. Board Committees (continued)
5.3 Audit Committee (continued)
Matters considered and action taken by the AC in 2021 (continued)
External
Auditors
Discussion of the results of the audit of the
financial statements;
Evaluation of the independence of the external
auditors;
Assessment through Audit Quality Indicators
(AQI) of the effectiveness of the external audit
process;
Approval of audit, tax compliance and other
assurance fees for the year;
Approval of permissible non-audit services
assigned to the auditors;
Update on the 2021 External Audit Plan.
The preparation of the financial statements requires
management to make a number of judgments or
assumptions that affect significant accounting
estimates. The external auditor for each of these
accounting estimates, have challenged the
appropriateness of assumptions and judgements
made by management, assessed the impact of
adopting plausible alternative assumptions.
The AC assessed through the AQIs the
effectiveness of the external auditors and
recommended that the auditors enhance their
reporting with regards to subsidiaries.
The external auditors presented their audit plan for
the year ended 2021.
The external auditors presented their conclusions in
relation to the significant estimates and
judgements and discussed them with management.
The auditors as part of their audit approach in line
with the prior year included testing of IT general
controls where financial reporting controls relied on
the specific IT systems in scope and provided
updates on the prior year findings in this area.
Further follow-ups were provided on findings in
other areas of the external audit. These will
continue to be discussed along with management’s
actions.
Governance
Review of the revised Terms of Reference of
the AC;
Approval of the Corporate Governance Report;
Approval of the Directors’ Compliance
Statement;
Remuneration of senior officers of compliance
and internal audit.
The Terms of Reference were revised to be in line
with the CBC Directive on Internal Governance
issued in Oct 2021.
The Board has delegated authority to the NCGC to
draw up the Annual Corporate Governance Report,
but the AC retains its duty to review and approve
the Annual Corporate Governance Report.
Relevant clarifications were sought and the AC was
satisfied with respect to the Annual Corporate
Governance report and the Directors’ Compliance
Statement.
Following the signing of the collective agreement
and the new grading system, the remuneration of
certain senior officers of the two control functions
was reviewed and recommended for approval.
Internal
Audit
Review of the Annual Audit Report;
Approval of the Internal Audit’s (IA) Annual
Audit Plan;
Review of the independence of the IA Division
and the IA Director;
Assessment of the independence, adequacy
and effectiveness of IA;
Appraisal of the IA Director;
Review of the Internal Audit Division Charter;
Approval of the IA budget;
Review of the IA quarterly activity reports;
Overview of the internal audit services;
IA staffing needs and skills Assessment;
Update on complaints received through the
whistleblowing line;
External Quality Assessment process initiation.
The conclusions arising from the internal audit
activity as described in the Annual Audit Report
were discussed.
The adequacy, effectiveness and independence of
the internal audit function was assessed as
adequate and relevant confirmation was provided
to the Board.
Investigation reports, internal audit report findings
and recommendations were discussed as well as
management’s response and actions.
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313
5. Board Committees (continued)
5.3 Audit Committee (continued)
Matters considered and action taken by the AC in 2021 (continued)
Compliance
Review of the Group Financial Crime & Sanctions
Compliance Department (‘FCSCD’) Annual Report;
Review of the Group FCSCD Risk Management
Report;
Review of the Compliance Annual Report;
Review and approval of the CD Action Plan;
Review and approval of the Anti-Money
Laundering (‘AML’) risk appetite statement and
policies;
Consideration of major compliance issues and
reports submitted to it by CD;
Review and approval of the various regulatory
compliance policies;
Update on important forthcoming regulatory
developments – 6
th
EU AML Directive;
OSI Audit of the ECB on Internal Governance and
Risk Management of Compliance;
Report of the DPO;
Compliance Management System;
Appraisal of the Director Compliance;
Launching of digital KYC tool.
Data privacy issues and way forward discussed.
An in-depth presentation of the recently
implemented Compliance Management System was
made to the AC which discussed efficiencies,
performance and the need to fully utilise the
system.
The OSI findings and recommendations were
discussed and actions were taken to enhance
compliance activities.
Internal
controls
Annual review of the effectiveness of the Group’s
internal controls;
Review of the IT Action Plan to address audit
findings;
Ongoing interaction with external auditors for
exchange of information and evaluation in the
context of use of the work of Internal Audit, as
allowed by the International Standard on Auditing
(ISA) 610 “Using the work of InternalAuditors”.
.Based on the work carried out in 2021, reasonable
assurance is provided, with emphasis on specific
matters, on the design, adequacy and operating
effectiveness of the Group’s internal control
framework, corporate governance and risk
management processes, for managing significant
risks, according to the risk appetite set by the
Board of Directors. Emphasis is placed on the areas
of Digitalisation, Information Systems and Data
Governance, current, as well as any future, risk
exposures.
The progress of addressing IT audit findings was
discussed with regard to availability and continuity
of IT services.
Subsidiaries
Oversight
Reports by the audit committees of the two
insurance companies – General Insurance Ltd and
Eurolife.
The AC Chairman attended on a regular basis the
AC meeting of the two insurance companies and
provided guidance and advice on various matters
discussed.
Discussion of issues faced by the two insurance
companies. The AC recommended the insurance
companies develop new or supplementary products
with exclusive benefits to render them attractive to
customers.
The Committee has exercised its authority delegated by the Board for ensuring the integrity of the Group’s
published financial statements, by discussing and challenging the judgements made by management and the
assumptions and estimates on which they are based. The Committee on behalf of the Board reviewed the
2021 Group Annual Financial Report and the process by which the Group believes that the Annual Report
taken as a whole, is fair, balanced and understandable and provides the information necessary for
shareholders to assess the Group’s position and performance, business model and strategy. Following review,
the Committee has advised the Board that such a statement can be made in the Annual Report (page 50).
A key activity for the Committee is the consideration of significant matters relating to the annual financial
report, with key accounting judgements and disclosures subject to in depth discussion with management and
the external auditors, PricewaterhouseCoopers (‘PwC’). The Committee provides robust challenge to key
judgements in advance of making a recommendation to the Board that all financial reports are considered to
be a fair, balanced, and understandable assessment of the Group’s financial position.
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5. Board Committees (continued)
5.3 Audit Committee (continued)
The most significant judgements, estimates and assumptions in 2021 related to classification of financial
instruments and the calculation of expected credit losses, the estimation of the net realisable value of stock of
property and provisions relating to pending litigation, claims, regulatory and other matters. Economic activity
recovered strongly in 2021 despite the uncertainties brought on by the pandemic. The Committee discussed
the appropriateness of the three different economic scenarios used by the Group in the calculation of expected
credit losses for loans and advances to customers. Further information is set out in Note 5 of the Consolidated
Financial Statements.
The Committee considered for disclosure all material relevant issues that have concerned management and
the Group statutory auditors during the year.
Management reporting to the Committee from across the business has provided the opportunity for the
Committee to challenge, probe, discuss and seek assurances from management, enabling the Committee to
provide an independent perspective. The AC considered among others, the following significant issues in its
review of the financial statements for the year ended 31 December 2021. In addressing these issues, the
Committee discussed key areas of management’s judgements and estimates with the external auditors, PwC;
particular areas for discussion included their findings/observations as part of their audit/review of the Group’s
financial statements, including inter alia, loan provisioning and impairment, going concern assessment,
litigation and claim provisions and observations in relation to the Group’s controls over Information
Technology.
Specific matters considered by the Committee were: the effectiveness of the system of internal controls,
financial reporting, the major findings of internal audits and investigations into control weaknesses and
management’s response. The AC has received confirmation that executive management has taken or is taking
the necessary actions to remedy any failings or weaknesses identified through the operation of the Group’s
framework of controls and will continue to reassess and remediate further as needed.
The Committee has the responsibility for examining any significant transactions in any form, carried out by the
Company and/or its subsidiary companies, where any member of the Board, CEO, senior executive officer,
Secretary, auditor or large shareholder has, directly or indirectly, any significant interest. It ensures that these
transactions are carried out within the framework of the Company’s normal commercial practices (at arm’s
length).
The Committee received regular reports from the EDFL, the Internal Audit Director and the Director of
Compliance who regularly attended the Committee’s meetings. Reports were submitted to the Committee on
internal control matters. The Committee has regular discussions with the external auditors, the Internal Audit
Director and the Director of Compliance on various issues without the presence of the management.
Other responsibilities
The AC and the RC liaise closely and in joint committee meetings, review the appropriateness of and
completeness of the system of internal controls, management’s recommendations in respect of provisions for
impairment of loans and advances and other impairment losses and charges as reported in the Group’s
financial statements. The AC is primarily responsible to review the manner and framework in which
management ensures and monitors the adequacy of the nature, extent and effectiveness of internal controls
system, including accounting control systems, thereby maintaining an effective system of internal controls.
The chairperson of the Committee holds the role of Whistleblower’s Champion and has specific responsibility
for the integrity, independence and effectiveness of the Group’s policies and procedures on whistleblowing,
including the procedures for protecting employees who raise concerns from possible discriminatory or
retaliatory actions. He has also been named as the designated Board member responsible for the
implementation of the AML Law and relevant Directives.
As a result of the Committee’s work in 2021, assurance has been provided to the Board on the quality and
appropriateness of the Group’s financial reporting and on internal audit, compliance and regulatory matters, to
continue to safeguard the interests of the Group’s broader stakeholders.
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5. Board Committees (continued)
5.3 Audit Committee (continued)
The Committee’s performance during 2021 was assessed as part of the internal performance evaluation of the
Board. The conclusion drawn was that the Committee is regarded as operating effectively and the Board takes
assurance from the quality of the Committee’s work. The chairperson of the Committee reported to the Board
after each meeting to ensure all directors were fully informed of the Committee’s activities.
It is noted that Eurolife Ltd and General Insurance Ltd also maintain an audit committee which reports to the
AC on an annual basis. The AC chairman periodically attends meetings of these subsidiary audit committees
and reports back to the AC and the Board.
5.3.1 Internal Audit & Compliance Divisions’ effectiveness
The Internal Audit and Compliance Divisions report directly to the Board through the AC. They are
organisationally independent of units with other executive functions and are not subordinated to any other unit
of the Company, except the Director of Compliance who reports administratively to the CEO. The Committee’s
activities included the consideration of reports submitted by the Internal Audit and Compliance Divisions.
In monitoring the activities and effectiveness of Internal Audit Division, the Committee approved the annual
audit plan and budget, including resources, and reviewed progress against the plan throughout the year.
The Committee received regular reports from Internal Audit on internal audit activities across the Group which
outline details of the audit approach, management engagement and areas identified during audits for further
strengthening across the Group’s risk management and internal control framework. These reports cover
matters of relevance to the Committee in assessing the effectiveness of the internal controls. Reports are
rated based on the design adequacy and operating effectiveness of control environment, as well as
management’s control awareness of the risks facing their business area. In conjunction with Internal Audit
reports, the Committee considers management’s responses to, and the timeliness of the remediation of
identified issues.
The Committee has satisfied itself that the Internal Audit Division was effective and adequately resourced
through regular meetings held with and reports provided by the Internal Audit Director on internal audit
issues, including the effectiveness and adequacy of resources. It also approved the engagement of consultants
for the External Quality Assessment of the Internal Audit, as required by the IIA Standards every five years.
The Committee reviewed the internal audit planned activities for the following year. Management’s responses
to Internal Audit’s findings and recommendations, as well as the implementation progress of recommendations
provided in internal and external reports were reviewed and monitored. The monthly reports issued by the
Internal Audit Director enable the Committee to focus discussion on specific areas of concern and to track
remediation progress over time.
Regular reports are submitted by Compliance Division to the AC on matters relating to regulatory risk across
the Group. The Committee also received reports from the Money Laundering Compliance Officer on the
operation and the effectiveness of the systems and controls established by the Group to manage Financial
Crime & Sanctions Compliance (‘FCSC’) risk. FCSC incorporates money laundering, terrorist financing,
sanctions and bribery and corruption and is a key area of Committee focus. The remediation plan approved by
the AC across the Group on customer due diligence is rigorously monitored. There is zero-tolerance on money
laundering and terrorism financing incidents and no violations of the relevant legislation or breaches of the
Group’s internal policies, procedures and its compliance framework are permitted.
The Committee proposes to the Board the appointment, replacement, transfer or removal of the Internal Audit
Director and the Director of Compliance. It submits a report to the Board on the assessment and monitoring of
the independence, adequacy and effectiveness of Internal Audit and the Compliance Division.
Assurances have been sought and received by the Committee concerning the resourcing of the Internal Audit
and Compliance functions.
5.3.2 Arrangements relating to the external auditors
The Committee oversees the relationship with the external auditors. During the year, the Committee
considered PwC’s terms of engagement, including remuneration, its independence, audit quality /
performance, objectivity and considered the plans for the interim review and year-end audit.
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5. Board Committees (continued)
5.3 Audit Committee (continued)
5.3.2 Arrangements relating to the external auditors (continued)
Appropriate safeguards are in place to protect the independence and objectivity of PwC. The Committee
operates a Group Policy on the Provision of Non-Audit Services by the Group’s statutory auditors in line with
the EU Directive and the Auditors’ Law to regulate the use of the statutory auditors for non-audit services. In
order to ensure the objectivity and independence of the PwC, the policy formalises certain restrictions in the
provision of non-audit services by PwC and requires that any engagement of the external auditors for services
must be approved in advance by the Committee. Quarterly, details of approved non-audit services are
presented to the Committee for review, including monitoring of the balance between audit and permissible
non-audit services.
The AC is responsible for overseeing all matters relating to the relationship between the Group and its
statutory auditors, including the external audit plan, terms of engagement, audit and non-audit fee
arrangements, interim findings and audit finding reports.
The Group is committed to ensuring the independence and objectivity of the statutory auditors and on a semi-
annual basis the AC formally reviews the effectiveness, independence and performance of the external
auditors. The AC also reviews the external auditors’ approach and strategy for the annual audit and audit
findings.
The process for assessing the effectiveness of the audit process using AQIs, is supported by tailored
questionnaires completed by the AC members and relevant senior management personnel. The responses
received are collated and presented to the AC for discussion.
The external auditors do not provide internal audit services to the Group. The AC reviews annually a detailed
analysis of the audit and non-audit fees relating to work done by the external auditors, to confirm their
independence and refers this analysis to the Board. The External Recruitment Policy provides on hiring
employees or former employees of the external auditor.
Information on fees paid in respect of audit and non-audit services, along with details of non-audit services
provided during the year are set out in Note 15 of the Consolidated Financial Statements.
In accordance with the provisions of the European Directive on statutory audits and following a transparent
and competitive tender process in 2017, the AC recommended to the Board the appointment of
PricewaterhouseCoopers (‘PwC’) for accounting periods commencing 1 January 2019. The AGM held on 25 May
2021 considered the continuation in office of PwC as Auditors of the Company and authorised the Board to fix
their remuneration.
The AC assessed the independence of the statutory auditors prior to the commencement of the audit period
and continues to assess their independence on a six-monthly basis. The Committee concluded that it was
satisfied with the independence, quality and performance of PwC in respect of the year ended 31 December
2021 and recommended that the Board propose PwC for reappointment for approval at the 2022 AGM. The
lead partner for the audit engagement is Mr. Kevin Egan. PwC’s term as statutory auditor ends in 2027. PwC’s
performance and independence shall be continuously reviewed and they shall remain subject to reappointment
each year, pending the selection of a new audit firm ahead of their departure in 2027.
5.4 Risk Committee
The RC as at 31 December 2021 comprised of three independent non-executive directors and one non-
independent non-executive director. The Board considers that the RC consists of directors who possess
individually and collectively adequate knowledge, skills and expertise to fully understand and monitor the risk
strategy and the risk appetite of the Group as well as its risk management and control practices. The
Committee’s composition is fully compliant with the CSE Code and the CBC Directive on Internal Governance
but not the UK Code which requires every member to be independent.
Biographical details, including each member’s background, experience and independence status, are set out in
section 4 of this report.
The Committee held 25 meetings during 2021. The chairperson and members of the Committee together with
their attendance at meetings are shown below.
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5. Board Committees (continued)
5.4 Risk Committee (continued)
Member attendance in RC meetings* in 2021:
Ioannis Zographakis (Chair) 25/25
Maksim Goldman 24/25
Paula Hadjisotiriou 25/25
Nicos Sofianos 20/20
* The number of committee meetings at BOC PCL level were 29 during 2021. The attendance of these meetings can be
found on page 294.
To ensure coordination with the work of the AC, Mr. Zographakis, Mrs Hadjisotiriou and Mr Sofianos are
members of the AC. Mr. Goldman is also a member of the HRRC. Such common membership facilitates
effective governance across all finance and risk issues. Agendas can be aligned and overlap of responsibilities
can be avoided. There are regular joint meetings of the AC and RC to ensure there are no gaps in the
oversight of internal controls and that any areas of significant overlap are appropriately addressed.
The main purpose of the Committee is to review, on behalf of the Board, the aggregate risk profile of the
Group, including performance against risk appetite for all risk types and to ensure that both the risk profile
and risk appetite remain appropriate. Specifically, it:
Assists the Board in overseeing the implementation of the Group’s risk strategy and the corresponding
limits set;
Identifies, assesses, controls and monitors financial / economic risks and non-financial risks (including
operational, technological, tax, legal, reputational and compliance risks) which the Group faces in
cooperation with the responsible Board Committees;
Considers, challenges and recommends to the Board for approval the Group's overall Risk Appetite;
Reviews the aggregated Risk Profile for the Group and performance against Risk Appetite and reports its
conclusions to the Board;
Identifies the potential impact of key issues and themes that may affect the Risk Profile of the Group;
Ensures that the Group's overall Risk Profile and Risk Appetite remain appropriate given the evolving
external environment, any key issues and themes impacting the Group and the internal control
environment;
Seeks to identify and assess future potential risks which, by virtue of their uncertainty, of low probability
and unfamiliarity may not have been factored adequately into review by other Board Committees;
Ensures effective and on-going monitoring and review of the Group's management or mitigation of risk,
including the Group's control processes, training and culture, information and communication systems and
processes for monitoring and reviewing their continuing effectiveness; and
Ensures the effective management of all risks associated with outsourcing.
The Bank, like all other financial institutions, is exposed to risks, the most significant of which are credit risk,
liquidity and funding risk, market risk, operational risk and property price risk. The Group monitors and
manages these risks through various control mechanisms and reviews the mitigating actions proposed by
management.
The Committee gives detailed consideration to existing and emerging risks, through a balanced agenda which
ensures sufficient focus on standing areas of risk management through the Group Risk Framework, together
with specific attention being given to those emerging risks which are considered to be of ongoing importance
to the Group and its customers.
Emerging risks included areas such as transformation risk, data management, IT resilience and information
security (including cyber security) and climate-related risks where the dynamic nature and significance of
related risks and challenges continue to evolve.
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5. Board Committees (continued)
5.4 Risk Committee (continued)
Key matters included:
Recommending the Group’s risk appetite framework and Risk Appetite Statement. Considering breaches of
risk appetite, remediation plans and required communications;
Recommending policies for credit, market and liquidity risks and approving other key risk policies;
Regularly assessing the Group’s overall risk profile and emerging risk themes, hearing directly from the
Chief Risk Officer and regularly reviewing the risk report and risk appetite dashboard;
Receiving reports on the Group’s operational and technology capability, including specific updates on cyber
risk capability, IT resilience, IT Service Continuity Management and Data Management;
Recommending the Group’s plan for managing NPEs, a key driver of managing legacy credit risk and
reviewing the risk aspects of NPE sales;
Recommending the 2021 ICAAP and ILAAP and Capital Plan.
Work has also been initiated and will continue into 2022, to determine the climate related and environmental
risks the Bank is exposed to, so that these can be integrated into the existing risk taxonomy and risk registry
of the Bank and inform its various business processes.
At each meeting, the RC reviews the risk report which identifies key issues and includes a view of the Group’s
Risk Appetite Statement, as well as top and emerging risks. The Committee provides challenge and review to
the Group’s regulatory submissions relating to capital management and liquidity adequacy assessments.
To ensure consistency of scope and approach by subsidiary company committees, the RC has established core
terms of reference to guide subsidiary companies when adopting terms of reference for the non-executive risk
committees. The Committee’s endorsement is required for any proposed material changes to subsidiary
company risk committee terms of reference and for appointments to such committees.
Detailed information relating to Group Risk Management is set out in Notes 45 to 48 of the Consolidated
Financial Statements and the Additional Risk and Capital Management Disclosures section of the 2021 Annual
Financial Report.
The Committee identified the current and potential impact of key issues and themes on the Group’s risk profile
and performed deep dive discussions in order to better understand and provide guidance to the management.
Deep dive discussions concentrated on the new lending scorecard as well as the Information Security
Operating Model and strategy forward. The Fraud Risk Assessment Framework was discussed at length. SREP
results and data governance issues were also discussed in depth. Further the Committee discussed and
approved or recommended for approval a number of restructurings and contractual or non-contractual write-
offs.
The RC discussed and approved the RC calendar for 2021 and undertook the following key activities:
Matters considered and action taken by the RC in 2021
Risk Strategy
and
Management
Risk Appetite Framework;
ICAAP/ILAAP/Risk Quantification;
Stress Test;
Capital Plan updates and MREL Funding Plan;
Charter and Budget of Risk Management Division;
Financial Plan Risk Assessment;
Trades for NPE portfolio.
Follow up of actions of Risk Appetite Framework
and relevant indicators cascaded down to the
business.
The stress test results were reviewed and the
Bank performs similar to peers.
Review of sale transactions of NPE & REO
portfolio.
Reviewed and challenged ICAAP and ILAAP
scenarios and output.
Operational Risk
Business continuity;
Third Party Risk Management;
Fraud Risk Management;
Risk Control Self-Assessment (‘RCSA’) process;
COVID-19 impact.
Some critical outsourcing to be reviewed by the
RC.
Enhancements/Developments on RCSA & Risk
Actions to further embed RCSAs into Line
Business operations.
Review of the Fraud Risk Assessment
Framework.
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5. Board Committees (continued)
5.4 Risk Committee (continued)
Matters considered and action taken by the RC in 2021 (continued)
Governance
Terms of Reference of the Committee and those
of Credit Committees;
Review of the effectiveness of the Committee;
Appraisal of the Chief Risk Officer and the
Information Security Manager;
Review of all policies.
Revision of RC Terms of Reference to align with
CBC Directive on Internal Governance.
Reshaped the focus and priorities of the RC
agenda.
Credit Risk
Control &
Monitoring
Credit Portfolio overview;
Credit Exposures greater than €100m;
New lending scorecards;
Provisions for all quarters;
Credit Risk Control and Monitoring;
- Review of portfolio under moratorium;
- Performance of the NPE & Forborne Mechanism;
- Staff Loans.
Focus on portfolio quality.
Revision of approval limits.
Covid solutions.
NPL plan on track.
Adjusted provisioning process to account for
Covid.
Market /
Liquidity Risk
Credit Limits (counterparty & country);
Market Risk Limits;
Levels for Market Risk Related Limits.
Continuous monitoring of market developments
on bonds exposure - especially on Cyprus
government bonds.
Other Areas of
Focus
Shipping /Syndication Portfolio;
Recovery Plan & Playbook 2021;
REMU real estate portfolio;
RRD performance;
Property Risk;
Data Governance Framework.
Monitored progress, performance and quality of
Shipping and syndicated lending portfolio.
Maintained oversight on data governance
process.
Monitored disposal of Banks repossessed real
estate portfolio.
Information
Security
Information Security Reports;
Information Security Risk Assessment
Framework;
Risks Thresholds for better governance;
Security controls maturity/associated remediation
program;
Data leakage and remote access governance;
Appointment of new Chief Information Security
Officer.
Monitoring the redesigned KRIs to more
effectively measure significant security pillars
and optimise RAS thresholds.
Increase in the security control maturity score.
Monitoring of Information Security Incidents.
Monitoring of ICT regulations and Bank’s
progress.
Emphasis given on empowering InfoSec to
better fulfil its role and provide added value to
the Bank.
Regulatory
communication
Emphasis on quality reporting to the ECB;
Follow up of SREP and on-site inspections;
Review of regulatory Correspondence.
Maintaining close monitoring on regulatory
matters.
Subsidiaries
oversight
The annual reports of the subsidiary risk
committees of Eurolife & General Insurance Ltd.
The reports were reviewed and enhanced
interaction with the two insurance subsidiaries
will be set in place.
The chairperson of the Committee reported to the Board after each meeting to ensure all directors were fully
informed of the Committee’s activities.
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5. Board Committees (continued)
5.5 Technology Committee
The Committee held 7 meetings during 2021 at BOC PCL level. The chairperson and members of the
Committee together with their attendance at meetings are shown below.
Member attendance in TC meetings in 2021:
Lyn Grobler (Chair) 7/7
Ioannis Zographakis 7/7
Paula Hadjisotiriou 6/7
Arne Berggren 7/7
Constantine Iordanou 1/1
The purpose of the TC is to assist the Board of Directors in fulfilling its oversight responsibilities with respect
to the overall role of technology in executing the business strategy of the Group including, but not limited to,
major technology investment, technology strategy, operational performance, and technology trends that may
affect the Group’s client portfolio and/or affairs in general. The Committee has delegated authority by the
Board of Directors and is responsible to:
Review and approve the Group’s technology planning and strategy within the overall strategy framework
approved by the Board;
Review and approve significant technology investments and expenditures as per the Committee and limit
structures approved by the Board, provided they do not fall within the limits that are reserved for the
Board;
Monitor and evaluate existing and future trends in technology that may affect the Group’s strategic plans,
including monitoring of overall industry trends;
Oversee the performance of the Group’s technology operations including, among other things, project
delivery, technical operations, technology architecture and the effectiveness of significant technology
investments;
Oversee the application of Information Security policies.
Notwithstanding the above, responsibility for the oversight of risks associated with technology, including risk
assessment and risk management, remains with the RC.
The Committee monitored the progress of the digital transformation of the Bank and reviewed Key
Performance Indicators focused on measuring the increase of usage of digital channels. Digital engagement
stood at 77.7% towards year end compared to 73.9% the previous year. The projects running in the IT
function were monitored to ensure they stayed within reasonable deadlines. Digital onboarding was initiated
successfully. The Digital Transformation of the insurance subsidiaries was also reviewed and monitored on a
six-monthly basis. 11 incidents of non-availability of systems were reported in 2021 of which 8 were
considered major. The root cause was identified in all cases and mitigating actions were taken to avoid
recurrence.
The Committee reviewed the Annual Information Security Report and was informed on the key challenges and
the progress made on the InfoSec operating model. A joint meeting with the Audit and Risk Committees was
held to review audit findings and relevant recommendations related to risk management of certain large
projects.
The chairperson of the Committee reported to the Board after each meeting to ensure all directors were fully
informed of the Committee’s activities.
5.6 Ethics, Conduct and Culture Committee
The Committee held 6 meetings during 2021 at BOC PCL level. The chairperson and members of the
Committee together with their attendance at meetings are shown below.
Member attendance in ECCC meetings in 2021:
Ioannis Zographakis (Chair) 6/6
Maria Philippou 5/6
Michael Heger 5/6
Maksim Goldman 6/6
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5. Board Committees (continued)
5.6 Ethics, Conduct and Culture Committee (continued)
The role of the Committee is:
To support the Board in promoting its collective vision of values, conduct and culture;
To oversee management’s efforts to foster a culture of ethics and appropriate conduct within the Group;
To oversee the way the Group conducts business focusing on developing a customer-centric culture with
an eye on profitability in all its operations;
To oversee the Group’s conduct in relation to its corporate and societal obligations, including setting the
direction and policies for the Group’s approach to customer and regulatory matters; and
To oversee the framework for implementing ESG throughout the operations of the Bank and
advise/coordinate accordingly with the NCGC and the Sustainability Committee.
The Committee focuses on providing oversight of key ethics matters and the workings of the Disciplinary
Committee, on decision-making about matters of conduct and reputational risk and on handling issues of
Corporate Social Responsibility with the aim of building and maintaining the right risk, control, customer-
centric and economic prosperity culture.
The Committee monitored the progress of the initiative – ‘Project Ethos’ – which is expected to align
organisational culture with strategic objectives. Under the guidance of the Committee several workstreams
were created to redesign performance appraisals, enrich policies and procedures, create a risk culture
dashboard and enhance the risk and control culture across the Group.
Communication with staff is continuous and includes messages, emails, short videos under the slogan ‘I am
the Bank’ emphasising the expected behaviours and the traps to avoid. Data metrics have been devised to
measure the risk culture of the Group. The Disciplinary Code was also updated and approved.
The Committee approved the Terms of Reference of the Sustainability Committee which will implement the
ESG Strategy of the Group. This shift in strategy will provide transparency in all aspects of the Company’s
business, including its efforts for a positive impact on society and the environment, through the published
Annual Corporate Responsibility Report. The Group’s leading position should be used to drive the ESG agenda
of the government and the economy in general, through initiatives and proposals to the government to
improve on its Green deal.
The Committee monitored compliance with the Code of Conduct and reviewed disciplinary controls and
measures of the Group as presented by HRD on an annual basis.
The chairperson of the Committee reported to the Board after each meeting to ensure all directors were fully
informed of the Committee’s activities.
6. Remuneration Policy Report
The Remuneration Policy Report was prepared by the Board following a proposal by the HRRC in accordance
with Annex 1 of the CSE Code and the UK Code. It is presented in the 2021 Annual Financial Report of the
Group, after the Corporate Governance Report. Information on the remuneration of the members of the Board
for the year 2021 is disclosed in Note 50 of the Consolidated Financial Statements of the Group, as well as in
the Remuneration Policy Report.
7. Shareholder Relations
A priority of the Group is to communicate with shareholders. The responsibilities of the Chairperson include
ensuring effective communication with shareholders and ensuring that directors develop an understanding of
the views of major investors. Investor Relations Department has primary responsibility for managing and
developing the Group’s external relationship with existing and potential institutional investors and analysts.
The Chairperson, the SID, the CEO, the EDFL and the Manager Investor Relations engage extensively with
existing shareholders and potential new investors during individual or group meetings and on roadshows and
investor conferences. All meetings with shareholders are conducted in such a way as to ensure that price
sensitive information is not divulged.
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7. Shareholder Relations (continued)
Mrs Annita Pavlou, Manager Investor Relations Department, is the Investor Relations Officer, responsible for
the communication between shareholders and the Group since 30 August 2016. Information concerning the
Group is provided to shareholders, prospective investors, brokers and analysts in a prompt and unbiased
manner free of charge.
The Group uses its website (www.bankofcyprus.com.cy/group) to provide shareholders and potential investors
with recent and relevant financial information, including the annual, the mid-year financial report and
quarterly results, announcements and presentations. The Investor Relations section of the Group’s website is
updated with all announcements published on the LSE and CSE as these are made. It also contains contact
details for the Investor Relations Department.
Directors receive an investor relations update from management at all scheduled Board meetings. This update
typically includes market updates, share price and valuation analysis, updates on analysts’ reports and share
register analysis.
One of the responsibilities of the Chairperson of the Board is to ensure that the views, issues and concerns of
shareholders are effectively communicated to the Board and to ensure that directors develop an
understanding of the views of major investors. The Board considered the views of major shareholders on
company strategy and performance and assessed investor sentiment more broadly in conjunction with the
Group’s corporate brokers. The SID, Ioannis Zographakis, is available to shareholders if they have concerns
that are not resolved through the normal communication channels.
All shareholders of the Company are treated on an equal basis. There are no shareholders with special control
rights. Shareholders are promptly and accurately informed of any material changes regarding the Group,
including its financial condition, financial results, ownership and governance.
Under the Irish Companies Act 2014, one or more members holding at least 3% of the issued share capital of
the Company, representing at least 3% of the total voting rights of all the members who have a right to vote
at the meeting to which the request for inclusion of the item relates, has the right to: (a) put an item on the
agenda of the AGM provided that the item has been accompanied by stated grounds justifying its inclusion or
a draft resolution to be adopted; and (b) to table a draft resolution for an item on the agenda of a general
meeting. Such a request must have been received by the Company at least 42 days prior to the relevant
meeting.
Any change or addition to the Articles of Association of the Company is only valid if approved by special
resolution at a meeting of the shareholders.
Major shareholders do not have different voting rights from those of other shareholders. As at 31 December
2021, the Company has been advised of the following notifiable interest in the share capital of the Company:
Lamesa Investments Limited 9.27%
CarVal Investors 8.69%
Caius Capital 7.96%*
Senvest Management LLC 5.63%
European Bank for Reconstruction and Development 5.02%
Cyprus Popular Bank Public Co Ltd 4.81%
Eaton Vance Management 3.69%
* Financial Instruments with similar economic effect according to Regulation 17(1)(b) of the Transparency (Directive
2004/1109/EC) Regulations 2007 of Ireland as amended.
In accordance with the Company’s Constitution, at the Company’s AGM in 2021:
The Directors were authorised to allot up to an aggregate of 147,245,978 ordinary shares of €0.10
each; and a further 147,245,978 ordinary shares of €0.10 each in the case of a pre-emptive issue (as
described in the notice for that general meeting);.
The Directors were authorised to issue and allot those shares as if the pre-emption provisions set out in
section 1022 of the Companies Act 2014 are dis-applied in respect of:
(i) in the case of a pre-emptive issue, the aggregate number of ordinary shares of €0.10 each
authorised to be issued pursuant to such issue (as described in the notice for that general meeting);
and (ii) 22,309,997 ordinary shares of €0.10 otherwise that (i); and
a further 22,309,997 ordinary shares of €0.10 each for specified transactions.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
323
7. Shareholder Relations (continued)
The Directors were also authorised to issue, allot, grant options over or otherwise dispose of Additional
Tier 1 (“AT1 ECNs”) and ordinary shares pursuant to the conversion or exchange of AT1 ECNS provided
that this be limited to the issue, allotment, grant of options over or other disposal of ordinary shares of
an aggregate nominal amount €6,662,999 and of AT1 ECNs convertible or exchangeable into ordinary
shares up to such maximum aggregate nominal amount and the pre-emption provisions set out in
section 1022 of the Companies Act 2014 in respect of this authority were dis-applied.
The Directors were also authorised to make purchases of up to 44,619,993 ordinary shares. Such
purchases may be made only at price levels which the directors considered to be in the best interests of
the shareholders generally, after taking into account the Company’s overall financial position. In
addition, the minimum price which may be paid for such shares shall not be less than the nominal value
of the shares and the maximum price will be the higher of 105% of the average market price of such
shares and the amount stipulated by Article 5(1) of the EU Market Abuse (Buyback and Stabilisation)
Regulation.
The authority conferred in each of the above resolutions expires on the earlier of close of business on the date
of the AGM of the Company or on 24 August 2022.
The AGM was held on 25 May 2021 at the Company’s headquarters with shareholders having the ability to
listen to the meeting by electronic means and the ability to vote by either submitting a proxy form in advance
of the meeting or by using the electronic voting facility. The Chairperson of the Board (who is also the chair of
the NCGC) and the chairpersons of the committees of the Board were present to hear the views of the
shareholders and answer questions. As is the practice, all directors of the Board at the time of the AGM
attended the AGM. At the 2020 AGM, separate resolutions were proposed on each substantially separate issue
and voting was conducted by poll. To facilitate shareholder participation, electronic voting is available. Votes
are taken by way of a poll to include all shareholder votes cast.
The results of every AGM of the Company including details of votes cast for and against on each resolution are
posted on the Group’s website (www.bankofcyprus.com.cy/group) and released to the London and Cyprus
Stock Exchanges.
There was one resolution for which a negative vote of more than 20% was cast. However, given that the
particular views of the shareholders on this matter were known and particular actions had previously been
announced, there was no corresponding announcement following the announcement of the voting results.
The Board values the AGM as a key opportunity to meet shareholders. The 2021 AGM of the Company is
scheduled to be held on 20 May 2022. Should circumstances and measures in place relative to the pandemic
allow it, the whole Board is expected to attend and will be available to answer shareholders’ questions.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
Remuneration Policy Report for the year 2021
324
Remuneration Policy Report for the year 2021
1. Introduction
In accordance with the provisions of the CSE Code published by the CSE (5
th
Edition (Revised) January 2019) and
in particular Annex 1 of the CSE Code, the HRRC prepares the Annual Board of Directors’ Remuneration Policy
Report which is ratified by the Board and submitted to the shareholders’ AGM as part of the Annual Report of the
Group. The Board of Directors Remuneration Policy Report for the year 2021 was ratified by the Board on 29
March 2022.
The Bank of Cyprus Group’s objective to attract, develop, motivate and retain high value professionals is
considered fundamental in achieving the goals and objectives of the Group and ensuring that the right people are
in the right roles whilst managing the Group’s remuneration strategy and policies in a manner aligned with the
interests of the Group’s shareholders.
2. Human Resources and Remuneration Committee
The Committee’s primary role is to ensure that staff members contribute to sustainable growth by staying ahead
of challenges and opportunities.
The Group aims to review its remuneration policies and practices on an ongoing basis and amend them where
necessary, in order to ensure that they are consistent with and promote sound and effective risk management.
Every year, the Committee proposes to the Board the Annual Remuneration Policy Report as part of the Annual
Report of the Group, which is submitted to the shareholders’ AGM. The Committee also reviews the related party
transactions note (Note 50) of the Consolidated Financial Statements of the Group and the Remuneration Policy
Report itself.
The composition of the Committee is described in section 5.2 of the Annual Corporate Governance Report on page
306.
2.1 Terms of Reference of the Human Resources and Remuneration Committee
The role of the Committee is described in detail in section 5.2. of the Annual Corporate Governance Report on
page 306. In respect of remuneration the HRRC undertakes the following:
To propose adequate remuneration considered necessary to attract and retain high value-adding professionals;
To consider the remuneration arrangements of the executive directors of the Group, senior management and
the Group Remuneration policy bearing in mind the European Banking Authority (‘EBA’) Guidelines on sound
remuneration policies, the CBC Directive on Internal Governance, the CSE Code; the UK Code and any other
applicable or regulatory requirements; and
To review the implementation and effectiveness of the Remuneration Policy and ensure this is in compliance
with the Remuneration Framework of the CBC Directive on Internal Governance.
The Committee ensures that internal control functions are involved in the design, review and implementation of
the Remuneration Policy and that staff members who are involved in the design, review and implementation of the
Remuneration Policy and practices have relevant expertise and are capable of forming independent judgement on
the suitability of the Remuneration Policy and practices, including their suitability for risk management.
The Group’s aim is to align its Remuneration Policy and human resources practices, with its business strategy,
objectives, values and long-term interests of the Group and ensure that they are consistent with and promote
sound and effective management of risk and long-term sustainable success and do not encourage excessive risk-
taking.
The Policy aims to ensure the application of a fair, transparent and gender neutral pay management process that
applies equally to all staff, aligns their remuneration with job value, individual performance and potential and
takes into account market conditions. At the same time, the principles set out in the Policy aim to encourage
responsible business conduct, fair treatment of customers and to avoid conflicts of interest.
In developing its Remuneration Policy, the Group takes into account the provisions that are included in the CSE
Code, the UK Code, the CBC Directive on Internal Governance which came into effect in October 2021 and
incorporates the requirements for Remuneration Policies included in the European Capital Requirements Directive
(‘CRD V’), the EBA Guidelines on sound remuneration policies issued in July 2021, MiFID II and other Guidance of
the EU as well as regulatory restrictions currently pertinent to the banking sector and the Group in particular.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
Remuneration Report for the year 2021
325
Remuneration Policy Report for the year 2021 (continued)
2. Human Resources and Remuneration Committee (continued)
2.1 Terms of Reference of the Human Resources and Remuneration Committee (continued)
The Committee reviews and approves the content of any resolutions submitted for approval at the AGM of the
shareholders, which are prepared by the Company Secretary in cooperation with the Group’s legal advisers in
accordance with Annex 3 of the Code which may concern possible plans for the compensation of members of the
Board in the form of shares, share warrants or share options.
Senior Management
The Committee jointly with NCGC approves remuneration packages of executive members of the Board, other
senior management, heads of control functions and other staff reporting to Board committees, including salary,
pension policy, option plans, and other types of compensation, recommended by the CEO or by the chairpersons
of the Risk and Audit Committees (in the case of the heads of internal control functions) in consultation with the
CEO and HRD.
The Committee reviews and approves appointments, transfers and dismissals of Group divisional directors, senior
managers and subsidiaries’ general managers (except heads of internal control functions), recommended by the
CEO, and ensures that all contractual obligations are adhered to.
The chairperson of the Committee is available to shareholders in the AGM to answer any questions regarding the
Remuneration Policy of the Group. Workforce engagement is described in section 5.2 of the Annual Corporate
Governance Report.
3. Governance of Group Remuneration Policy
3.1 Principles of the CSE Code of Corporate Governance
Companies should implement official and transparent procedures for developing policies concerning the
remuneration of executive directors and fixing the remuneration of each Board member separately. The level of
remuneration should be sufficient to attract and retain talent required for the efficient operation of the Company.
Part of the remuneration of executive directors should be determined in such a way as to link rewards to corporate
and individual performance. Resolution, or any other authority allowing, variable pay should be linked to
performance.
The Company’s Corporate Governance Report includes a statement of the Remuneration Report and relevant
criteria, as well as the total remuneration of the executive and non-executive members of the Board.
3.2 EBA Guidelines
The EBA Guidelines aim to ensure that an institution’s remuneration policies and practices are consistent with and
promote sound and effective risk management. The Group seeks to ensure it implements remuneration policies
which are in compliance with regulatory guidelines, while at the same time operating under legal and regulatory
constraints.
In accordance with EBA guidelines for identification of those employees whose professional activities are deemed
to have a material impact on the Group’s risk profile, the Group maintains a list of these employees known as
Material Risk Takers which is reviewed and approved by the Board annually.
4. Remuneration
4.1 Remuneration of Non-executive Directors
The remuneration of non-executive directors is not linked to the profitability of the Group. It is related to the
responsibilities and time devoted for Board meetings and decision-making for the governance of the Group, and
for their participation in the committees of the Board and any participation in the boards of Group subsidiary
companies. The shareholders’ AGM held on 25 May 2021 approved the increase on the annual remuneration of the
Chairman of the Board and the remuneration of the NCGC members. The remuneration of the remaining members
remained at the same levels of remuneration as those approved by the shareholders’ AGM on 26 May 2020.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
Remuneration Report for the year 2021
326
Remuneration Policy Report for the year 2021 (continued)
4. Remuneration (continued)
The remuneration of non-executive directors is determined and approved by the Board. Neither the Chairperson
nor any director participates in decisions relating to their own personal remuneration. The Committee proposes
fees payable to the Chairperson and the Vice-Chair, while the Chairperson makes recommendations for the
remuneration of the non-executive directors to the Board for approval by the AGM, considering the following
factors:
Τhe time allocated and effort exerted by non-executive directors to meetings and decision-making in the
management of the Group;
Τhe undertaken level of risk;
Τhe increased compliance and reporting requirements;
Τhe requirement not to link remuneration of non-executive directors to the profitability of the Group;
Τhe requirement that non-executive directors do not participate in the pension schemes of the Group;
Τhe requirement not to include variable remuneration or share options as remuneration of non-executive
directors.
Neither the Chairperson nor any non-executive directors received any performance related remuneration. The
remuneration of the non-executive directors is set out below:
Position
Annual Remuneration (€000)
Chairperson
180
Vice-Chair
80
Senior Independent Director
70
Non-Executive Members
45
Chairpersons
Audit Committee
45
Risk Committee
45
Human Resources and Remuneration Committee
30
Nominations and Corporate Governance Committee
30
Technology Committee
30
Ethics, Conduct and Culture Committee
30
Membership
Audit Committee
25
Risk Committee
25
Human Resources and Remuneration Committee
20
Technology Committee
20
Ethics, Conduct and Culture Committee
20
Nominations and Corporate Governance Committee
20
Additionally, the Group reimburses all directors for expenses incurred in the course of their duties.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
Remuneration Report for the year 2021
327
Remuneration Policy Report for the year 2021 (continued)
4. Remuneration(continued)
4.1 Remuneration of Non-executive Directors (continued)
The non-executive directors have letters of appointment which can be inspected during normal business hours by
contacting the Company Secretary.
4.2 Remuneration and Other Benefits of Executive Directors
The Committee jointly with the NCGC reviews and approves the remuneration packages vis-a-vis their
performance. In line with the UK Code the following factors are also considered: clarity, simplicity, risk,
predictability and proportionality and finally alignment to culture. The CEO is an employee of BOC PCL. The
Executive Director Finance & Legacy (‘EDFL’) is also an employee of BOC PCL.
As executive directors do not receive any variable remuneration at all, by virtue of the restrictions currently in
place, this makes their annual remuneration fully predictable.
Contracts of Employment
The remuneration (salary and bonus) of executive directors is set out in their employment contracts which have a
maximum duration of five years, unless any of the executive directors is an appointed member of the senior
management team, in which case the terms of employment are based on the provisions of the collective
agreement in place, excluding the CEO.
The employment contract of the CEO is for a period of five years commencing on 1 September 2019.
The Group at present does not grant guaranteed variable remuneration or discretionary pension payments.
Service Termination Agreements
The employment contract of Panicos Nicolaou, CEO, includes a clause for termination, by service of six months’
notice to that effect by either the executive director or BOC PCL without cause, BOC PCL also maintains the right
to pay to the executive director six months’ salary in lieu of notice for immediate termination. There is an initial
locked-in period of three years during which no such notice may be served either by BOC PCL or the executive
director unless there is a change of control of BOC PCL as this is defined in the service agreement whereupon the
executive director may serve the notice and is further entitled to compensation as this is determined in the service
agreement.
The terms of employment of Mrs Livadiotou, EDFL and executive member of the Board, are mainly based on the
provisions of the collective agreement in place, which provide for notice or compensation by the BOC PCL based on
years of service and for a four month prior written notice by the executive director, in the event of a voluntary
resignation.
Bonus
No bonus was recommended by the Company’s Board for executive directors for 2021.
Retirement Benefit Schemes
The CEO participates in a defined contribution plan largely on the same basis as other employees. The EDFL
participates in a defined contribution plan on the same basis as other employees.
The main characteristics of the retirement benefit schemes are presented in Note 14 of the Consolidated Financial
Statements for the year ended 2021.
Share Options
No share options were granted to the executive directors during 2021.
Other Benefits
Other benefits provided to the executive directors include other benefits provided to staff, medical fund
contributions and life insurance. The relevant costs for the executive management are disclosed in Note 50 of the
Consolidated Financial Statements for the year ended 2021.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
Remuneration Report for the year 2021
328
Remuneration Policy Report for the year 2021 (continued)
5. Information Regarding the Remuneration of Directors for Year 2021
Remuneration
for services*
€
Remuneration
for
participation in
the Board of
Directors and
its Committees
€
Total
remuneration
for services
€
Remuneration
and benefits
from other
Group
companies
€
Remuneration
in the form of
profit and/or
bonus
distribution
€
Assessment of
the value of
benefits that
are considered
to form
remuneration
€
Total
remuneration
and benefits
€
Annual
contribution
to
retirement
benefits
€
Executive Directors
Panicos Nicolaou
745.232
745.232
6.435
751.667
61,258
Eliza Livadiotou
1
90.337
-
90.337
-
-
1,727
92,064
6.769
Non-Executive
Directors
Efstratios -Georgios
Arapoglou
215.220
215.220
215.220
Lyn Grobler
154.350
154.350
154.350
Arne Berggren
-
113.190
113.190
-
-
-
113.190
-
Maksim Goldman
-
113.190
113.190
-
-
-
113.190
-
Paula Hadjisotiriou
118.335
118.335
118.335
Michael Heger
113.190
113.190
-
-
-
113.190
-
Constantine
Iordanou
2
6.047
6.047
-
-
-
6.047
-
Maria Philippou
-
118.335
118.335
-
-
-
118.335
-
Nicos Sofianos
3
-
99.669
99.669
-
-
-
99.669
-
Ioannis Zographakis
-
198.375
198.375
-
-
-
198.375
-
835.569
1.249.901
2.085.470
-
-
8,162
2,093,632
68,027
* Includes employers’ contributions excluding contributions to retirement benefits.
1- Appointed as Executive Director on 6 October 2021
2- Appointed on 29 November 2021
3- Appointed on 26 February 2021
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Annual Corporate Governance Report 2021
Remuneration Report for the year 2021
329
Remuneration Policy Report for the year 2021 (continued)
5.1 Comparison of Directors’ and Employees’ remuneration
The following table provides information regarding the annual change in the total remuneration of members of the
Group’s Board of Directors, as compared with the Group performance as well as the average change in
remuneration, on a full-time equivalent basis, of the employees, between 2020 and 2021.
Annual Change
Note
Percentage
change in 2021
Percentage
change in 2020
Directors’ Remuneration-Executive Directors
Panicos Nicolaou, CEO
1
41%
74%
Christodoulos Patsalides, First Deputy CEO
2
n/a
-14%
Eliza Livadiotou, Executive Director Finance & Legacy
3
38%
14%
Directors’ Remuneration-Non-Executive Directors (NEDs)
Efstratios-Georgios Arapoglou (Chairman)
4
40%
82%
Lyn Grobler
5
14%
48%
Arne Berggren
1%
-4%
Maksim Goldman
6
-3%
-5%
Paula Hadjisotiriou
8%
13%
Michael Heger
-3%
-4%
Constantine Iordanou
7
n/a
n/a
Maria Philippou
16%
54%
Nicos Sofianos
8
n/a
n/a
Ioannis Zographakis
-4%
30%
Anat Bar-Gera
9
n/a
-59%
Average remuneration on a full-time equivalent basis of employees
Employees of the Group
10
3,7%
-13,4%
Company performance
Operating profit as per Underlying basis
2.2%
-10.0%
Cost to Income Ratio excluding special levy on deposits and other
levies/contributions
11
0 p.p.
+1 p.p.
Notes:
1. Appointed on 1 September 2019 (including the remuneration as KMP)
2. Resigned on 31 October 2020
3. Appointed on 6 October 2021 (including the remuneration as KMP)
4. Elected as Chairman on 14 May 2019
5. Elected as Vice-Chairperson on 26 May 2020
6. Resigned from Vice-Chairperson position on 26 May 2020
7. Appointed on 29 November 2021
8. Appointed on 26 February 2021
9. Resigned on 26 May 2020
10. Employees cost of the Group - as per FS (excluding Voluntary Staff Exit Plan (VEP)) (Note 14). The reduction in financial
year 2020 compared to 2019 was due to the reduction of the number of employees following a large scale voluntary
exit plan executed in 2019.
11. Defined as total operating expense as per underlying basis (excluding other non-recurring items, VEP, Special levy on
deposits and other levies/contributions and provisions for litigation, claims, regulatory and other matters) divided by
total income
29 March 2022
330
Additional Risk and Capital Management
Disclosures
2021
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Additional Risk and Capital Management Disclosures (unaudited)
331
The Group is exposed to risks which it monitors, manages and mitigates through various control mechanisms.
Information relating to Group’s risks and risk management in relation to credit risk, market risk, liquidity and
funding risk and insurance risk, as well as capital management is set out in the Notes 45-49 to the
Consolidated Financial Statements. This report includes additional disclosures on the principal and emerging
risks faced by the Group and capital management disclosures.
The Board is responsible to ensure that a coherent and comprehensive Risk Management Framework for the
identification, assessment, monitoring and controlling of all risks is in place. The framework provides the
infrastructure, processes and analytics needed to support effective risk management. It also ensures that
material risks are identified, including, but not limited to, risks that might threaten the Group’s business
model, future performance, liquidity, and solvency. Such risks are taken into consideration in defining the
Group’s overall business strategy ensuring alignment with its risk appetite. In setting its risk appetite, the
Group ensures that its risk bearing capacity is considered so that the appropriate capital levels are always
maintained. To that end, a consolidated risk report and risk appetite dashboard is regularly reviewed and
discussed by the Board and the Risk Committee (RC) to ensure the risk profile is within the approved risk
appetite. In case where violations occur, the Risk Appetite Framework provides the necessary escalation
process to analyse the materiality and nature of the breach, notify the appropriate authorities, and decide the
necessary remediation actions to address the problem.
1. Credit risk
Credit risk is the risk that arises from the possible failure of one or more customers to discharge their credit
obligations towards the Group. Further information relating to Group risk management in relation to credit
risk is set out in Note 45 of the Consolidated Financial Statements.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Additional Risk and Capital Management Disclosures (unaudited)
332
1. Credit risk (continued)
The tables below present the analysis of loans and advances to customers in accordance with the EBA standards.
Gross loans and advances to customers
Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
31 December 2021
Group gross
customer
loans and
advances
1
Of which:
NPEs
Of which exposures with
forbearance measures
Accumulated
impairment,
accumulated
negative changes in
fair value due to
credit risk and
provisions
Of which:
NPEs
Of which exposures with forbearance
measures
Total exposures
with forbearance
measures
Of which:
NPEs
Total exposures
with forbearance
measures
Of which: on
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 45,357
- - -
29
- - -
Other financial corporations 127,889
4,771 12,759 4,487
3,393
1,909 1,948 1,658
Non-financial corporations 5,209,599
277,309 1,009,094 215,157
144,252
115,869 86,847 79,329
Of which: Small and Medium sized
Enterprises
2
(SMEs)
4,052,571 123,558 734,362 71,269 83,757 60,892 39,263 32,499
Of which: Commercial real estate
2
3,968,375 171,215 900,697 136,257 100,301 82,872 69,309 64,282
Non-financial corporations by sector
Construction
512,952
28,418
21,224
Wholesale and retail trade
964,891
40,457
28,586
Accommodation and food service activities
1,137,443
4,323
3,351
Real estate activities
1,210,664
106,841
31,821
Manufacturing
326,535
14,354
8,094
Other sectors
1,057,114
82,916
51,176
Households 4,755,100
434,040 430,007 238,066
153,865
136,902 70,667 64,589
Of which: Residential mortgage loans
2
3,734,448 369,147 372,141 208,387 112,711 105,764 56,145 52,219
Of which: Credit for consumption
2
581,197 54,238 61,824 31,165 28,824 22,167 13,290 11,430
10,137,945 716,120 1,451,860 457,710 301,539 254,680 159,462 145,576
Loans and advances to customers
classified as held for sale
555,789 553,620 245,452 243,495 305,419 304,665 118,094 117,377
Total on-balance sheet 10,693,734 1,269,740 1,697,312 701,205 606,958 559,345 277,556 262,953
1
Excluding loans and advances to central banks and credit institutions.
2
The analysis shown in lines ‘non-financial corporations’ and ‘households’ is non-additive across all categories as certain customers could be in both categories.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Additional Risk and Capital Management Disclosures (unaudited)
333
1. Credit risk (continued)
31 December 2020
Gross loans and advances to customers
Accumulated impairment, accumulated negative changes in fair value due to
credit risk and provisions
Group gross
customer
loans and
advances
3
Of which:
NPEs
Of which exposures with
forbearance measures
Accumulated
impairment,
accumulated
negative changes
in fair value due
to credit risk and
provisions
Of which: NPEs
Of which exposures with forbearance
measures
Total exposures
with forbearance
measures
Of which:
NPEs
Total exposures
with forbearance
measures
Of which: on
NPEs
€000 €000 €000 €000 €000 €000 €000 €000
Loans and advances to customers
General governments 50,771
1 - -
1,949
- - -
Other financial corporations 115,668
10,494 17,303 4,568
7,232
5,545 2,604 1,907
Non-financial corporations 5,364,716
574,205 499,948 304,406
272,331
245,647 106,238 101,989
Of which: Small and Medium sized
Enterprises
4
3,797,095 387,568 327,344 193,938 230,595 210,511 91,092 87,496
Of which: Commercial real estate
4
4,042,172 346,607 367,083 193,959 154,807 139,915 77,104 74,009
Non-financial corporations by sector
Construction
614,135
75,550
42,791
Wholesale and retail trade
997,904
134,135
80,885
Accommodation and food service activities
1,123,380
19,836
12,766
Real estate activities
1,129,066
140,532
30,355
Manufacturing
376,551
45,142
28,185
Other sectors
1,123,680
159,010
77,349
Households 5,160,342
1,055,706 821,614 544,408
523,938
495,784 231,313 221,722
Of which: Residential mortgage loans
4
4,059,939 882,336 690,514 465,939 396,275 382,063 185,648 178,570
Of which: Credit for consumption
4
622,102 133,351 89,725 68,763 82,951 74,473 33,363 32,285
10,691,497 1,640,406 1,338,865 853,382 805,450 746,976 340,155 325,618
Loans and advances to customers
classified as held for sale
1,341,255 1,312,166 754,795 731,624 848,218 832,419 447,731 434,657
Total on-balance sheet 12,032,752 2,952,572 2,093,660 1,585,006 1,653,668 1,579,395 787,886 760,275
3
Excluding loans and advances to central banks and credit institutions.
4
The analysis shown in lines ‘non-financial corporations’ and ‘households’ is non-additive across all categories as certain customers could be in both categories.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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334
2. Liquidity and funding risk
Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its commitments as
they fall due.
Funding risk is the risk that the Group does not have sufficiently stable sources of funding or access to sources of
funding may not always be available and thus the Group may fail to meet its regulatory obligations (e.g. MREL).
Further information relating to Group risk management in relation to liquidity and funding risk is set out in Note
47 of the Consolidated Financial Statements.
2.1 Encumbered and unencumbered assets
Asset encumbrance arises from collateral pledged against secured funding and other collateralised obligations.
An asset is classified as encumbered if it has been pledged as collateral against secured funding and other
collateralised obligations and, as a result, is no longer available to the Group for further collateral or liquidity
requirements. The total encumbered assets of the Group amounted to €4,489,424 thousand as at 31 December
2021 (2020: €2,958,877 thousand).
An asset is classified as unencumbered if it has not been pledged as collateral against secured funding and other
collateralised obligations. Unencumbered assets are further analysed into those that are available and can
potentially be pledged and those that are not readily available to be pledged. As at 31 December 2021, the
Group held €17,468,507 thousand (2020: €15,033,868 thousand) of unencumbered assets that can potentially
be pledged and can be used to support potential liquidity funding needs and €1,324,118 thousand (2020:
€2,173,289 thousand) of unencumbered assets that are not readily available to be pledged for funding
requirements in their current form.
The table below presents an analysis of the Group’s encumbered and unencumbered assets and the extent to
which these assets are currently pledged for funding or other purposes. The carrying amount of such assets is
disclosed below:
31 December 2021
Encumbered Unencumbered
Total
Pledged as
collateral
Which can
potentially be
pledged
Which are not
readily available to
be pledged
€000 €000 €000 €000
Cash and other liquid assets 102,463 8,958,427 461,625 9,522,515
Investments 1,260,158 859,383 19,622 2,139,163
Loans and advances to customers 3,126,803 6,248,132 461,470 9,836,405
Non-current assets held for sale - - 358,951 358,951
Property - 1,402,565 22,450 1,425,015
Total on-balance sheet 4,489,424
17,468,507
1,324,118
23,282,049
31 December 2020
Cash and other liquid assets 78,831 5,389,179 588,089 6,056,099
Investments 37,105 1,837,573 38,436 1,913,114
Loans and advances to customers 2,842,941 6,150,122 892,984 9,886,047
Non-current assets held for sale - - 630,931 630,931
Property - 1,656,994 22,849 1,679,843
Total on-balance sheet 2,958,877
15,033,868
2,173,289
20,166,034
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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2. Liquidity and funding risk (continued)
2.1 Encumbered and unencumbered assets (continued)
Encumbered assets primarily consist of loans and advances to customers and investments in debt securities.
These are mainly pledged for the funding facilities of the European Central Bank (ECB) and for the covered bond
(Notes 30 and 47 of the Consolidated Financial Statements for the year ended 31 December 2021 respectively).
Encumbered assets include cash and other liquid assets placed with banks as collateral under ISDA agreements
which are not immediately available for use by the Group, but are released once the transactions are terminated.
Cash is mainly used to cover collateral required for (i) derivatives and (ii) trade finance transactions and
guarantees issued. It may also be used as part of the supplementary assets for the covered bond.
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered Bonds legislation and the
Covered Bonds Directive of the Central Bank of Cyprus (CBC). Under the Covered Bond Programme, BOC PCL has
in issue covered bonds of €650 million secured by residential mortgages originated in Cyprus. On 28 May 2021,
the terms of the covered bond were amended to extend the maturity date to 12 December 2026 and set the
interest rate to 3-months Euribor plus 1.25% on a quarterly basis. The covered bonds are listed on the
Luxemburg Bourse and have a conditional Pass-Through structure. All the bonds are held by BOC PCL. The
covered bonds are eligible collateral for the Eurosystem credit operations and are placed as collateral for
accessing funding from the ECB.
Unencumbered assets which can potentially be pledged include Cyprus loans and advances which are less than
90 days past due. Balances with central banks are reported as unencumbered and can be pledged, to the extent
that there is excess available over the minimum reserve requirement. The minimum reserve requirement is
reported as unencumbered not readily available to be pledged.
Unencumbered assets that are not readily available to be pledged primarily consist of loans and advances which
are prohibited by contract or law to be encumbered or which are more than 90 days past due or for which there
are pending litigations or other legal actions against the customer, a proportion of which would be suitable for
use in secured funding structures but are conservatively classified as not readily available for collateral.
Properties whose legal title has not been transferred to the Company or a subsidiary are not considered to be
readily available as collateral.
Insurance assets held by Group insurance subsidiaries are not included in the table above or below as they are
primarily due to the insurance policyholders.
The carrying and fair value of the encumbered and unencumbered investments of the Group as at 31 December
2021 and 2020 are as follows:
31 December 2021
Carrying
value of
encumbered
investments
Fair value of
encumbered
investments
Carrying value of
unencumbered
investments
Fair value of
unencumbered
investments
€000 €000 €000 €000
Equity securities -
-
208,775
208,775
Debt securities 1,260,158
1,267,666
670,230
668,201
Total investments 1,260,158
1,267,666
879,005
876,976
31 December 2020
Equity securities -
-
204,270
204,270
Debt securities 37,105
37,601
1,671,739
1,688,644
Total investments 37,105
37,601
1,876,009
1,892,914
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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2. Liquidity and funding risk (continued)
2.2 Liquidity regulation
The Group has to comply with provisions on the Liquidity Coverage Ratio (LCR) under CRD IV/CRR (as
supplemented by Delegated Regulations (EU) 2015/61). The Group also has to comply with the Net Stable
Funding Ratio (NSFR) calculated as per the Capital Requirements Regulation II (CRR II), enforced in June 2021,
with the limit set at 100%.
The LCR is designed to promote the short-term resilience of a Group’s liquidity risk profile by ensuring that it has
sufficient high-quality liquid resources to survive an acute stress scenario lasting for 30 days. The NSFR has been
developed to promote a sustainable maturity structure of assets and liabilities.
As at 31 December 2021 and throughout 2021, the Group was in compliance with all regulatory liquidity
requirements. As at 31 December 2021, the LCR stood at 298% for the Group (compared to 254% at 31
December 2020) and was in compliance with the minimum regulatory requirement of 100%. As at 31 December
2021 the Group’s NSFR was 147% (compared to 139% at 31 December 2020 on the basis of the Basel III
standards).
2.3 Liquidity reserves
The below table sets out the Group’s liquidity reserves:
Composition of the
liquidity reserves
31 December 2021 31 December 2020
Internal
Liquidity
Reserves
Liquidity reserves as
per LCR Delegated
Regulation (EU)
2015/61 LCR eligible
Internal
Liquidity
Reserves
Liquidity reserves as per
LCR Delegated
Regulation (EU)
2015/61 LCR eligible
Level 1 Level 2A Level 1 Level 2A
€000 €000 €000 €000 €000 €000
Cash and balances with
central banks
9,064,840
9,064,840
-
5,568,431
5,568,431
-
Placements with banks 118,752
-
-
248,839
-
-
Liquid investments 500,930
304,758
147,562
1,409,850
1,240,773
133,073
Available ECB Buffer 80,786
-
-
762,001
-
-
Total 9,765,308
9,369,598
147,562
7,989,121
6,809,204
133,073
Internal Liquidity Reserves present the total liquid assets as defined in BOC PCL’s Liquidity Policy. Liquidity
reserves as per LCR Delegated Regulation (EU) 2015/61 present the liquid assets as per the definition of the
aforementioned regulation i.e. High-Quality Liquid Assets (HQLA).
Under Liquidity reserves as per LCR, balances in Nostro accounts and placements with banks are not included, as
they are not considered HQLA (they are part of the LCR Inflows).
Liquid investments under the Liquidity reserves as per LCR are shown at market values reduced by standard
weights as prescribed by the LCR regulation. Liquid investments under Internal Liquidity Reserves include
additional unencumbered liquid bonds and are shown at market values net of haircuts based on ECB
methodology and haircuts.
The reduction in liquid investments and available ECB buffer for the year ended 31 December 2021 is due to the
utilization of ECB buffer and the encumbrance of bonds as collateral for the additional TLTRO funding obtained
during 2021 (of nominal value of €2 billion, bringing the total amount to €3 billion).
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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2. Liquidity risk and funding (continued)
2.3 Liquidity reserves (continued)
Current available ECB buffer is not part of the Liquidity reserves as per LCR.
The Liquidity Reserves are managed by Treasury.
Following the outbreak of COVID-19, the ECB has adopted a broad set of policy measures to mitigate the
economic impact of the crisis and to ensure that its directly supervised banks can continue to fulfill their role in
funding the real economy. A high-level description of the main measures which have a direct or indirect impact
on the liquidity position of banks is set out below.
ECB announced that it would allow banks to operate below the defined level of 100% of the LCR until at least the
end of 2021. On 17 December 2021, the ECB announced that this relief measure will not be extended beyond the
end of 2021. The set of collateral easing measures adopted, resulted in increasing BOC PCL’s borrowing capacity
from the ECB operations and improving the liquidity buffers due to the lower haircuts applied to the ECB eligible
collateral, that comprises of bonds and Additional Credit Claims (ACC). The collateral easing packages are
designed as temporary measures (with the exception of part of the haircut reduction on ACCs which is
permanent) that will remain in place until June 2022 and will be reassessed before then. Furthermore, the ECB
enlarged the scope of the ACC framework, increasing the universe of eligible loans. In relation to existing
collateral, the ECB announced changes in collateral rules, temporarily accepting collaterals with a rating below
investment grade, setting however a minimum acceptable rating level.
Additionally, the package contained measures that provided liquidity support to the euro area financial system,
such as significant favourable amendments in the terms and characteristics of TLTRO III. The favourable TLTRO
III borrowing terms are not expected to be extended post June 2022. Furthermore, a new series of additional
longer-term refinancing operations, called Pandemic Emergency Longer-Term Refinancing Operations (PELTROs),
was introduced. The last TLTRO III and PELTROs operations took place in December 2021.
3. Other risks
3.1 Operational risk
Operational risk is defined as the risk of a direct or indirect impact/loss resulting from inadequate or failed
internal processes, people, systems or external events. The Group includes in this definition compliance, legal
and reputational risk.
The Group recognises that the control of operational risk is directly related to effective and efficient management
practices and high standards of corporate governance. To that effect, the management of operational risk is
geared towards maintaining a strong internal control governance framework and managing operational risk
exposures through a consistent set of management processes that drive risk identification, assessment, control
and monitoring.
The main objectives of operational risk management within the Group are: (i) raising operational risk awareness
and building the appropriate risk culture, (ii) providing adequate and timely information to the Group’s
management at all levels in relation to the operational risk profile at a company, unit and activity level, so as to
facilitate decision making for risk control activities, and (iii) mitigating operational risk to ensure that operational
losses do not cause material damage to the Group’s franchise and that the impact on the Group’s profitability and
corporate objectives is contained.
Operational risks can arise from all business lines and from all activities carried out by the Group and are thus
diverse in nature. To enable effective management of all material operational risks, the operational risk
management framework adopted by the Group is based on the three lines of defence model, through which risk
ownership is dispersed throughout the organisation. The first line of defence comprises of management and staff
who have immediate responsibility of day-to-day operational risk management and own the risk. Each business
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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3. Other risks (continued)
3.1 Operational risk (continued)
unit owner is responsible for identifying and managing all the risks that arise from the unit’s activities as an
integral part of their first line responsibilities.
The second line of defence comprises of the Risk Management function whose role is to provide inter-alia
operational risk oversight and independent and objective challenge to the first line of defence, supported by
other specialist control and support functions including the Group Compliance Division and Information Security
functions. The third line of defence comprises of the Internal Audit function, which provides independent
assurance over the integrity and effectiveness of the risk management framework throughout the Group.
Business resilience is treated as a priority and as such the Group places significant importance on continuously
enhancing the business continuity arrangements, to ensure timely recovery in the case of events, such as the
COVID-19 pandemic, that may cause disruptions to the business operations.
According to the Pandemic Incident Management Plan, which was invoked following the COVID-19 outbreak,
Business Continuity arrangements have been put in place, which include splitting the operations of the critical
units at separate locations other than their main business sites along with remote access from home capabilities
as applicable. All the controls are undertaken as usual and no additional losses or incidents have been identified
as a result of the pandemic. The Operational Risk Management (ORM) unit was also faced with an increased
number of process/procedure assessments, as well as new product assessments that emerged due to the special
circumstances created by COVID-19.
Further to the actions taken in response to the COVID-19 pandemic, ongoing activities/initiatives towards further
enhancement of ORM involved inter alia the following: (i) provision of a fraud risk awareness seminar to staff and
top-management, (ii) establishment of a new COSO-ACFE Fraud Risk Assessment framework going beyond the
current RCSA process, and (iii) ongoing reviews and enhancements of the internal ORM policies, procedures and
the ORM database.
As a result of the customers’ accelerated shift towards digital channels, the Fraud Risk Management unit further
strengthened BOC PCL’s current external fraud prevention controls and framework.
Third-Party and Outsourcing risk can arise from over-dependence on a few providers, un-satisfactory vendor
monitoring and possibly lower quality or unsatisfactory continuity of service. The Group has a dedicated team
under the ORM Department, the Third-Party Risk Management Unit, which is responsible to perform risk
assessments on all outsourcing, strategic and intragroup arrangements of the Group. As part of the risk
assessment the team identifies and effectively handles any potential gaps/weaknesses. The risk assessment
occurs prior to signing an outsourcing/strategic/intragroup arrangement, prior to their renewal or annually.
Operational risk loss events are classified and recorded in the Group’s Risk and Compliance Management System
(RCMS) system, which serves as an enterprise tool integrating all risk-control data (e.g. risks, loss incidents, Key
Risk Indicators) to provide a holistic view with regards to risk identification, corrective action and statistical
analysis. During the year ended 31 December 2021, 323 loss events with gross loss equal to or greater than
€1,000 each were recorded including incidents of prior years (mostly legal cases) for which losses materialised in
2021 (2020: 314 loss events).
The Group strives to continuously enhance its risk control culture and increase the awareness of its employees on
operational risk issues through ongoing staff training (both through physical workshops, which were suspended in
2021 due to the COVID-19 circumstances, and through e-learning).
The Group also maintains adequate insurance policies to cover for unexpected material operational losses.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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339
3. Other risks (continued)
3.2 Regulatory risk
The Group conducts its business subject to on-going regulation and the associated regulatory risk, including the
effects of changes in the laws, regulations, policies, voluntary codes of practice and interpretations. Failure to
comply with regulatory requirements could lead to, amongst other things, increased costs for the Group,
limitation on BOC PCL’s capacity to lend and could have a material adverse effect on the business, financial
condition, results of operations and prospects of the Group.
There is strong commitment by the management of the Group for an on-going and transparent dialogue with the
Regulators (JST, ECB and CBC). Also, a dedicated Executive Steering Group through the Regulatory Affairs
department monitors the regulatory agenda to ensure that all regulatory matters are brought to the attention of
management in a timely manner.
The Regulatory Framework
The Single Supervisory Mechanism
As part of the initiative for the European Banking Union, Council Regulation (EU) No. 1024/2013 (the "SSM
Regulation") established a Single Supervisory Mechanism (SSM) pursuant to which the ECB has been assigned
key prudential supervisory tasks for credit institutions in the Eurozone and other EU Member States that
participate in the SSM (together with the Member States of the Eurozone, "participating SSM Member States"),
with other supervisory functions being assigned to National Competent Authorities (NCAs) of participating SSM
Member States.
The ECB exercises its prudential supervisory responsibilities under the SSM Regulation in cooperation with the
NCAs in the participating SSM Member States. The relevant NCA in Cyprus is the Central Bank of Cyprus (CBC).
NCAs continue to be responsible for supervisory matters not conferred on the ECB, such as conduct of business,
consumer protection, money laundering, payment services, and the regulation of branches of third country
banks.
The Single Resolution Mechanism
The EU has also established a Single Resolution Mechanism (SRM), under the Single Resolution Mechanism
Regulation No 806/2014 as part of the initiative for the European Banking Union. Under the SRM, a single
resolution process applies to all credit institutions established in EU Member States that are participating SSM
Member States. This process is co-ordinated by the Single Resolution Board (SRB) and a single resolution fund
(SRF). BOC PCL is subject to the supervision of the SSM and accordingly the SRM. The SRB acts as the resolution
authority for the Group.
The SRM Regulation is closely connected with the EU Bank Recovery and Resolution Directive 2014/59/EU
(BRRD). For credit institutions within the scope of the SSM, the SRB effectively takes on the role of the relevant
national resolution authority established under the BRRD (which, in the case of the Group, is the CBC). BOC PCL
is subject to the supervision of the SRB.
Supervision of the Group
BOC PCL is a significant credit institution for the purposes of the SSM Regulation and has been designated by the
CBC as an "Other Systemically Important Institution" (O-SII). The Group is subject to joint supervision by the
ECB and the CBC for the purposes of its prudential requirements. BOC PCL is further regulated and supervised by
the CBC with respect to matters not within the ECB's supervisory remit under the SSM Regulation.
BOCH and BOC PCL are also regulated by the Cyprus Securities and Exchange Commission (CySEC) in its
capacity as the supervisory authority for the operation of the Cyprus Stock Exchange (CSE) and control of issuers
of securities listed on the CSE. In addition, some members of the Group are also regulated on a standalone basis
by CySEC in its capacity as the relevant supervisory authority for the operation of MiFID investment
services/UCITS activities, while the two insurance entities of the Group are regulated by the Superintendent of
Insurance in Cyprus for insurance services.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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3. Other risks (continued)
3.2 Regulatory risk (continued)
The Regulatory Framework (continued)
Supervision of the Group (continued)
BOCH's shares are admitted to the standard listing segment of the Official List of the Financial Conduct Authority
(FCA), to trading on the Main Market for listed securities of the London Stock Exchange and also to listing on the
CSE and to trading on the Main Market of the CSE. As a result, BOCH is subject to supervision by the following
competent authorities:
• the FCA in relation to its compliance with the Market Abuse Regulation (EU) No 596/2014 (MAR) and the
applicable provisions of the FCA's Listing Rules and Disclosure Guidance and Transparency Rules;
• the CSE in relation to its compliance with the applicable provisions of Cyprus's Securities and Stock
Exchange Laws 1993-2007 (as amended) and Regulatory Decision for the Depositary Interests
Regulations (Regulatory Administrative Acts) (RAA 396/2016, 397/2016 and 408/2006) and the CSE's
Regulatory Decisions Act 379/2014 (as amended);
• the Central Bank of Ireland (CBI) in relation to compliance with the Transparency Directive (Directive
2004/109/EC) Regulations 2007 (as amended) and the Central Bank (Investment Market Conduct) Rules
2019 (which, together, implement the Transparency Directive (Directive 2004/109/EC) in Ireland) and
MAR and the European Union (Market Abuse) Regulations 2016 (which implements inter alia certain
aspects of MAR and associated delegated acts in Ireland); and
• CySEC in relation to its compliance with MAR and Cyprus' Takeover Bids Law L. 41(I)/2007 (which
implements the Takeover Directive (Directive 2004/25/EC) in Cyprus).
Other Regulators of Group Regulated Entities
For regulatory matters unrelated to the Group's capital requirements, BOC PCL’s regulated branches and
subsidiaries are supervised by regulators in their respective jurisdictions and are subject to local laws, directives,
regulations and guidelines in respect of their regulated activities.
The insurance subsidiaries of the Group comply with the requirements of the Superintendent of Insurance
including the minimum solvency ratio. The regulated UCITS management company of the Group, BOC Asset
Management Ltd and The Cyprus Investment and Securities Corporation Ltd (CISCO), the regulated investment
firm (CIF) of the Group comply with the regulatory capital requirements of the Cyprus Securities and Exchange
Commission (CySEC) laws and regulations as at 31 December 2021.
Regulatory and Legal Risks
In this context, the Group is exposed to a series of regulatory and legal risks:
• Legislative action and regulatory measures which may materially impact the Group and the financial and
economic environment in which it operates.
• The Group's business and operations are subject to substantial regulation and supervision and can be
negatively affected by its non-compliance with/non-implementation of regulatory requirements and any
adverse regulatory and governmental developments.
• The implementation of SSM recommendations as well as Supervisory Review and Evaluation Process
(SREP) prudential requirements, may impact the Group and its strategy.
• The implementation of a more demanding and restrictive regulatory framework (including CRD V/CRR II
and BRRD II) with respect to, amongst others, capital ratios, leverage, liquidity and disclosure
requirements, notwithstanding the benefit to the financial system, poses additional risks for banks.
• Changes in laws or regulations might also restrict certain types of transactions, affect the Group's strategy
and lead to revised customer charges for banking products or transactions.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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341
3. Other risks (continued)
3.2 Regulatory risk (continued)
Principal Financial Services Regulatory Requirements
Regulatory Capital Requirements
EU Capital Requirements Directive/Regulation
On 27 June 2019, a series of measures referred to as the Banking Reform Package came into force, subject to
various transitional and staged timetables. The Banking Reform Package updated the framework of harmonized
rules established following the financial crisis and introduces changes to:
• the Capital Requirements Regulation (CRR-EU/575/2013),
• the Fourth Capital Requirements Directive (CRD IV-2013/36/EU),
• the Bank Recovery and Resolution Directive (BRRD-2014/59/EU), and
• the Single Resolution Mechanism Regulation (SRMR-EU/806/2014).
Further details as to how the amendments introduced impact capital requirements are disclosed in Section 4
‘Capital management’.
Bank Recovery and Resolution
The BRRD establishes a framework for the recovery and resolution of EU credit institutions. The stated aim of the
BRRD is to provide resolution authorities with common tools and powers to address banking crises pre-emptively
in order to ensure the continuity of such institutions’ critical financial and economic functions whilst safeguarding
financial stability and minimising taxpayers’ exposure to losses. The BRRD includes the concept of loss
absorption.
One of the requirements of the BRRD is for EU credit institutions and certain investment firms to maintain a
Minimum Requirement for Own Funds and Eligible Liabilities (MREL), subject to the provisions of the Commission
Delegated Regulation (EU) 2016/1450. On 27 June 2019, as part of the reform package for strengthening the
resilience and resolvability of European banks, the BRRD ΙΙ came into effect and was transposed into national law
on 7 May 2021 with Law 96(I)/2021 amending the Resolution of Credit Institutions and Investment Firms Law. In
addition, certain provisions on MREL have been introduced in CRR ΙΙ which came into force on 27 June 2019 as
part of the reform package and took immediate effect. Further details on the Group requirements for MREL are
disclosed in Section 4 ‘Capital management’.
The BRRD also has significant funding implications for credit institutions, which include the establishment of pre-
funded resolution funds of 1% of deposits covered under the EU Deposit Guarantee Schemes Directive (DGSD)
2014/49 to be built up by 31 December 2024.
Solvency II
On 1 January 2016 the Directive 2009/138/EC of the European Parliament and of the Council and the relevant
Regulations on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) came in
force. Additionally, on 11 April 2016 the Law on Insurance and Reinsurance Services and Other Related Issues
(Law 38(I)/2016) became effective. The Superintendent of Insurance in Cyprus supervises the required capital
which should be maintained by insurance companies in order to ensure they meet the solvency requirement.
Additional internal risk appetite limits are set by the insurance subsidiaries of the Group, EuroLife Ltd and
General Insurance of Cyprus Ltd, in order to maintain sound capital ratios which can support operational targets.
The insurance subsidiaries of the Group manage their capital base by monitoring the coverage of solvency capital
requirements on a quarterly basis using high quality own funds. Both subsidiaries were compliant with the
solvency capital requirements imposed by the Superintendent of Insurance in Cyprus during 2021.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
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3. Other risks (continued)
3.2 Regulatory risk (continued)
Principal Financial Services Regulatory Requirements (continued)
Investor Compensation
The Cyprus Investment and Securities Corporation Ltd (CISCO) and BOC Asset Management Ltd (BOCAM) are
regulated entities under the supervision of CySEC. Both entities are members of the Investor Compensation Fund
(ICF) for clients of Investment Firms. The ICF was established pursuant to Article 59(1) and (2) of Law
144(Ι)/2007 which provides for the Provision of Investment Services, the Exercise of Investment Activities, the
Operation of Regulated Markets and other Related Matters as an investor compensation fund for clients of
companies other than credit institutions. In 2017, Law 144(I)/2007 was replaced by Law 87(I)/2017. The powers
and functions of the ICF are regulated by the provisions of the Directive DI87-07 for the Operation of the ICF
(dated 8th March 2019), which replaced Directive 144-2007-15 of the CySEC for the Continuance of Operation
and the Operation of the ICF. The ICF is administered by a five-member Administrative Committee, comprised of
three members designated by the Minister of Finance and two members elected by the General Meeting of the
members of the Fund.
CISCO is obliged to contribute annually an amount of 0.5% of the eligible funds and financial instruments of the
member’s covered clients and if paid by 10th July, there is a discount of 80% on the amount due. This payment
no longer accrues to CISCO’s already existing share at ICF which currently stands at €748 thousand and which
has reached the maximum permissible level according to the previous ICF Directive. This amount is also
deductible from the CET1 capital of CISCO as per CySEC’s Circular C162 of 2016. CISCO is also obliged to
contribute, when called upon by CySEC, an extraordinary supplementary contribution, if CySEC deems that the
existing means for the payment of compensation are inadequate, particularly in the event of a liquidation
procedure of a member of the ICF. The amount of the extraordinary supplementary contribution is not
designated (nor capped). Furthermore, CISCO is required to keep a minimum cash buffer of 0.3% of the eligible
funds and financial instruments of its clients as at the previous year, in a separate bank account, in case there is
a need for an extraordinary contribution and this should not be used for any other purpose. The cash buffer must
be deducted from CISCO’s CET1 capital. BOCAM is exempted from the aforementioned annual contribution since
custody of these funds is held with BOC PCL and CISCO.
The EU Investor Compensation Schemes Directive 97/9/EC (the ICSD) requires member states to establish
Investor Compensation Schemes (ICS) to protect investors with respect to firms carrying on investment business
(which may be an investment firm or a credit institution). An ICS will typically make payouts if an investment
firm or credit institution carrying on investment business fails.
In Cyprus, the Investor Compensation Fund for Clients of Banks (the Fund) was established under the
Investment Firms (IF) Law 2002, as amended thereafter. It is governed by the establishment and operation
regulations of an Investor Compensation Fund for Clients of Banks Regulations of 2004 and 2007. Such a Fund is
administered by a five member Management Committee, comprised of the Governor and the Senior Manager of
the Banking Supervision and Regulation Division of CBC and three other members appointed by the Governor of
CBC. BOC PCL is obligated to contribute annually an amount of up to 0.01% of the eligible funds and financial
instruments of BOC PCL's clients.
Personal Data
Regulation (EU) No. 2016/679 of 27 April 2016 on the protection of natural persons with regard to the processing
of personal data and the free movement of such data (also known as the EU General Data Protection Regulation
or the ‘GDPR’) directly applies in all EU member states (including Cyprus) from 25 May 2018. The GDPR
introduced obligations on data controllers and enhanced rights for data subjects. The requirements of the GDPR
affect the Group’s ability to collect, record, store, retain and use personal data as well as transfers of personal
data to countries that do not have adequate data protection laws.
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3. Other risks (continued)
3.2 Regulatory risk (continued)
Principal Financial Services Regulatory Requirements (continued)
Payment services
Directive (EU) 2015/2366 on payment services (the PSD II) was transposed into national law with the Law on the
Provision and Use of Payment Services and Access to Payment Systems (Law No. 31(I)/2018). BOC PCL is fully
compliant with this Law, by duly amending the agreement and relative terms and conditions applied to the
payment services offered to its clients.
Investment services
Directive (EU) 2014/65/EU and Regulation (EU) No. 600/2014 on markets in financial instruments (the MiFID II
and MiFIR) was transposed into national law with the enactment of the Law on the provision of investment
services, the exercise of investment activities and the operation of regulated markets (Law No. 87(I)/2017). This
new legislative framework strengthens investor protection and improves the functioning of financial markets.
Benchmark Regulation
The European Benchmarks Regulation (BMR) introduces a regime for benchmark administrators that, aims to
ensure the accuracy and integrity of benchmarks. The legislation has been in force since 2018, subject to certain
transitional provisions applicable to both European and third-country benchmark administrators.
The BMR is broad in scope and applies to almost all financial, interest rate, regulated data and commodity
benchmarks, subject to very limited exemptions. Examples of the use of benchmark include the issuance of a
financial instrument referencing an index or a combination thereof, the determination of an amount payable
under a financial instrument or a financial contract by referencing an index or a combination thereof, or being a
party to a financial contract or providing a borrowing rate. Users of benchmarks are not subject to any
standalone regulatory requirements under the BMR. However, they must ensure that the benchmarks they use
are compliant with the provisions of the legislation.
Other regulatory requirements
Additionally, during 2021 a number of laws and legislative amendments were enacted and adopted by the Group
where applicable, as indicated below:
• EBA opinion on the risks of ML/TF affecting the EU’s financial sector – March 2021. The ML/TF risks
identified by the EBA include those that are applicable to the entire financial system, for instance the use
of innovative financial services, while others affect specific sectors, such as de-risking. The list also
includes ML/TF risks that emerge from wider developments such as the COVID-19 pandemic that has an
impact on both firms’ AML/CFT compliance and competent authorities’ supervision. The Opinion,
therefore, sets out recommendations to competent authorities aimed at closing these gaps.
• ICT guidelines for insurance companies. The objective of the guidelines is to promote the increase of the
operational resilience of the digital operations of insurance and reinsurance undertakings against the risks
they face. Operational resilience is key to protect insurance and reinsurance undertakings’ digital assets,
including their systems and data from policyholders and beneficiaries.
• Directive on Internal Governance in Credit Institutions 2021 – Oct 2021. This Directive defines the
internal regulations, procedures and mechanisms to be implemented by credit institutions, in order to
ensure the efficient and prudent administration of the credit institution.
• Covered Bonds law and Directive – Nov 2021. In November 2019, EU Directive 2019/2162 on the issue of
covered bonds and covered bond public supervision and amending Directives 2009/65/EC and
2014/59/EU was published. This Directive lays down investor protection rules concerning: 1) the
requirements for issuing covered bonds, 2) the structural features of covered bonds, 3) the covered bond
public supervision, and 4) the publication requirements in relation to covered bonds.
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3. Other risks (continued)
3.2 Regulatory risk (continued)
Principal Financial Services Regulatory Requirements (continued)
Other regulatory requirements (continued)
• European Banking Authority revised guidelines on major incident reporting under PSD2 – December
2021. These Guidelines are in support of the objectives of the PSD2 of strengthening the integrated
payments market across the European Union, ensuring a consistent application of the legislative
framework, promoting equal conditions for competition, providing a secure framework on the payments
environment and protecting consumers.
• Guidelines on exemption from contingency measures under PSD2 (EBA/GL/2018/07) - December 2021.
These Guidelines clarify a number of issues identified by market participants and competent authorities in
relation to the four conditions to be met to benefit from an exemption from the fallback option envisaged
under Article 33(6) of Regulation (EU) 2018/389 (RTS) on strong customer authentication and common
and secure communication (SCA and CSC).
• Government Guarantee to Credit Institutions for offering loans to businesses and individuals. Government
guarantees will be provided for new loans which have been approved from the effective date of the
Decree until the cessation of the implementation of the European Commission Communication and not
after 31 March 2022 and, depending on the duration of the loan, the government guarantee will cover
any losses (70% of losses) for a period of 3 months to 6 years from the date of loan.
• Target 2 CBC Directive. Support the implementation of the Eurosystem’s monetary policy and the
functioning of the euro money market, minimise systemic risk in the payments market, i.e. the possibility
of a single actor causing an entire market to collapse, ensure the efficient processing of cross-border
payments in euro. By meeting these objectives, TARGET2 enables payments to flow safely and efficiently
across Europe and contributes to the stability of the euro.
• Taxonomy Regulation. A classification system, establishing a list of environmentally sustainable economic
activities. It aims to provide transparency to investors and businesses and to prevent “greenwashing” by
defining the criteria under which a financial product or activity can be described as “environmentally
sustainable. Banks are required to report “how, and to what extent, their activities are associated with
Taxonomy aligned activities” in connection with the Non-Financial Reporting Directive (NFRD). Further
product-level disclosure requirement in alignment with the Regulation on Sustainability-Related
Disclosures in the Financial Services Sector (SFDR) are applicable to Financial Market Participants that
market or manufacture financial products in the European Union. Products in scope are pensions and
asset management products; insurance-based investment products; and Corporate & Investment
Banking products including securitisation funds, venture capital and private equity funds, portfolio
management, and index funds.
• EU Council Directive 2011/16 in relation to cross-border tax arrangements (the DAC 6). The Cyprus
Government has taken up the option for a six-month extension of the reporting deadlines in relation to
the DAC 6 reporting regime provided to the member states by the EU Commission on 24 June 2020. The
transposition of DAC 6 into local legislation has been voted by the Cyprus Parliament in March 2021. The
provisions for the extension of the deadline for reporting and exchange of information under DAC6 are
incorporated in the new law. The Ministry of Finance and the Tax Department have issued two
announcements in June and in September 2021, informing that there will be no imposition of
administrative fines for overdue submission of DAC 6 information that will be submitted until the 30th
November 2021. As of 30th November 2021, all parties involved are legally obliged to submit information
regarding DAC 6 otherwise administrative fines will be imposed.
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3. Other risks (continued)
3.3 Political risk and geopolitical uncertainty
Cyprus is a small, open, services-based economy, with a large external sector and high reliance on tourism and
international business services. As a result, external factors which are beyond the control of the Group, including
developments in the European Union and in the global economy, or in specific countries with which Cyprus
maintains close economic and investment links, most notably the UK and Russia, can have a significant impact on
domestic economic activity. As a result, Cyprus' economic recovery will suffer from the adverse impact of the
crisis in Ukraine. Cyprus has a relatively large tourism sector (with a high share of foreign visitors coming from
Russia and Ukraine) and its growth outlook will depend on developments regarding sanctions, the potential to
grow new markets and the epidemiological assessment. The financial sector exposure to foreign markets has
been reduced since the 2013 banking crisis. However, Cyprus’ economy will be disproportionately affected by a
halt in capital inflows and foreign direct investment from Russia.
The invasion of Russia in Ukraine and the sanctioning of Russia will have profound effects on the Russian
economy and serious macroeconomic implications for the European Union and the world economy at large. As a
result of the crisis in Ukraine and sanctions, supply chains have been disrupted causing shortages in agricultural
commodities and metals. Energy prices have risen and, despite fluctuations, energy markets remain tight and
prices will stay higher for longer. Inflation pressures that were building before the outbreak of the war have
escalated and central banks have started their tightening cycles. The Bank of England raised its policy rates three
times in the first quarter to 0.75% and inflation hit 5.5% in February. In the US, the Federal Reserve raised
interest rates by 0.25% at its last policy meeting in mid-March and indicated another six hikes in the year and
three more next year before pausing. The ECB maintained its main refinance rate unchanged at zero at their
March meeting but indicated that quantitative easing will likely end sooner, and that interest rates may start to
rise earlier than anticipated. The policy dilemma posed by inflation pressures is even more severe after the war
on Ukraine. But raising interest rates to contain inflation would be adding to uncertainty and negatively impacting
the growth outlook. Monetary policy has been excessively expansionary for a long period and has thus created an
inflationary bias. The European response to the current crisis will have to rely more on fiscal policy.
The highly accommodative monetary policy of the ECB can change abruptly if inflation pressures persist. The
refinancing facility will remain at zero and the deposit facility at -0.5% over the next period. With interest rates
at their effective lower bound, monetary policy is conducted through quantitative easing. For 2022 the ECB
announced a step-by-step reduction in its asset purchases. Accordingly, asset purchases will be conducted at a
slower pace in the first quarter. The pandemic emergency purchase programme will be discontinued in the
second quarter and the asset purchase programme, will likely phase out by the end of the year or soon after.
With inflation pressures persisting longer than initially anticipated and if the current inflation spike proves to be
more long-lasting than expected, the ECB would accelerate the drawdown of quantitative easing and bring
forward interest rate increases.
If this occurs, it will heighten public debt risks and complicate debt servicing, especially for peripheral countries
with high debt loads such as Cyprus. In the absence of monetary policy support, the sovereign debt crisis that
had been kept away by the ECB could return, raising contagion risks for the wider euro area.
There have been distinct improvements in Cyprus’ risk profile after the banking crisis, but substantial risks
remain. Cyprus’ overall country risk is a combination of sovereign, currency, banking, political and economic
structure risk, influenced by external developments with substantial potential impact on the domestic economy.
The large stock of public debt weighs heavily on Cyprus’ sovereign credit risk. Public debt has risen from 91% of
GDP in 2019 to 115% of GDP in 2020 due to the pandemic mitigation measures and dropped to 104% of GDP in
2021. The median debt ratio in the Euro area was 75% in 2020. Debt sustainability would depend on growth, the
budget balance, but also on interest rates which determine debt service costs. Low interest rates currently, are
the result of large-scale asset purchases by the ECB, and ample liquidity in sovereign bond markets. A reversal of
monetary policy, or developments that can lead up to the fragmentation of the euro area bond sovereign market,
such as an unexpected sharp rise in inflation, can increase debt service costs and risk the sustainability of public
debt. The risk of bond market fragmentation has increased as a result of the Ukraine crisis and the sanctioning of
Russia.
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3. Other risks (continued)
3.3 Political risk and geopolitical uncertainty (continued)
In the banking sector, despite significant progress since the financial crisis of 2012-2014, risks remain elevated.
Non-performing loans dropped sharply from about 48% of gross loans at the end of 2014 to 15.2% of gross
loans at the end of October 2021 but compare unfavourably to a Euro area average of just over 2%. Also, loans
that had been under moratorium until the middle of 2021, have to date, been largely repaid. However, adverse
developments such as real sector shocks that can emanate for instance from a prolonged Covid pandemic, or
post-Covid permanent shifts in travel and hospitality preferences, or a more permanent impact from the Ukraine
crisis, can lead to an increase in the formation of non-performing loans and weaken bank balance sheets.
Cyprus suffers political risk because of the long-standing division of the island, and also because of its domestic
political system. Cyprus has a presidential system, with strong executive powers and a fragmented parliament
where majority formations for policymaking and passing legislation, including reforms, may be difficult.
Cyprus remains de facto divided since 1974. Repeated efforts for a solution have failed to materialise. The
positions of the two communities have hardened in the process, especially after the failure of the last round of
negotiations that ended with a multilateral conference in 2017, between the communities, the guarantor powers,
and the United Nations, headed by the Secretary General himself. Since late 2020 the UN has intensified its
efforts to establish a framework for a new round of negotiations, but progress towards agreeing a framework for
settlement talks has yet to be made.
Given the above, the Group recognises that unforeseen political events can have negative effects on the Group’s
activities, operating results and position.
3.4 Information security and cyber risk
Information security and cyber-risk is a significant inherent risk, which could cause a material disruption to the
operations of the Group. The Group’s information systems have been and will continue to be exposed to an
increasing threat of continually evolving cybercrime and data security attacks. Customers and other third parties
to which the Group is significantly exposed, including the Group's service providers (such as data processing
companies to which the Group has outsourced certain services), face similar threats.
At the same time, the Group has an internal specialised Information Security team which constantly monitors
current and future cyber security threats (either internal or external, malicious or accidental) and invests in
enhanced cyber security measures and controls to protect, prevent and appropriately respond against such
threats for its systems and information.
The Group collaborates with industry bodies, the National Computer Security Incident Response Team (CSIRT)
and intelligence-sharing working groups to be better equipped with the growing threat from cyber criminals.
In addition, the Group maintains insurance coverage which covers certain aspects of cyber risks and it is subject
to exclusion of certain terms and conditions.
Advanced social engineering attacks were used by attackers for credentials stealing and malware dissemination
during the COVID-19 pandemic. The Group’s cyber security systems have protected the Group from such threats
and are continually improved by strengthening detection, response and protection mechanisms in order to
continually contain such threats and keep risks within Group’s appetite thresholds.
Current geopolitical tensions may also lead to increased risk of cyber-attack from foreign state actors. In
particular, the Russian invasion of Ukraine and the imposition of significant sanctions on Russia by Switzerland,
the US, the EU, the UK and others may result in an increase in the risk of cyber-attacks.
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3. Other risks (continued)
3.5 Business and strategic risk
Business and strategic risk arises from changes in the external environment including economic trends and
competition. A deterioration of the macroeconomic environment stemming from the pandemic or other factors
such as the Ukraine crisis pose downside risks for the financial performance of the Group.
The Group faces intense competition in the markets in which it operates in Cyprus and in other parts of
Europe. Competition primarily originates from other commercial banks, branches and subsidiaries of foreign
banks, and insurance companies offering savings, insurance and investment products. It also faces competition
from financial technology companies. The Group remains today the biggest and most systemically important local
banking organisation in Cyprus.
Any intensification of competition as a result of more competitive interest rates being offered on deposits and
advances compared to those offered by the Group, may create pressure on Group profitability.
In order to mitigate its exposure to the business and strategic risk, the Group has a clear strategy with key
objectives. The strategy is developed within the risk appetite of the Group and is monitored closely on a regular
basis. The Group remains ready to explore opportunities that complement its strategy.
3.6 Legal risk
The Group may, from time to time, become involved in legal or arbitration proceedings which may affect its
operations and results. Litigation risk arises from pending or potential legal proceedings and regulatory
investigations against the Group (Note 39 of the Consolidated Financial Statements for the year ended 31
December 2021). In the event that legal issues are not properly dealt with by the Group, this may result in
financial and/or reputational loss to the Group. The Group has procedures in place to ensure effective and
prompt management of Legal risk including, among others, the risk arising from regulatory developments, new
products and internal policies.
The Legal Services department (LSD) monitors the pending litigation against the Group and assesses the
probability of loss for each legal action against the Group based on International Accounting Standards. It also
estimates the amount of potential loss where it is deemed as probable. Additionally, it reports pending litigation
and latest developments to the Board of Directors.
3.7 Insurance risk and re-insurance risk
The Group, through its subsidiaries EuroLife Ltd (‘EuroLife’) and General Insurance of Cyprus Ltd (‘GIC’), provides
life insurance and non-life insurance services, respectively, and is exposed to certain risks specific to these
businesses. Insurance events are unpredictable and the actual number and amount of claims and benefits will
vary from year to year from the estimate established using actuarial and statistical techniques. Insurance risk
therefore is the risk that an insured event under an insurance contract occurs and uncertainty over the amount
and the timing of the resulting claim exists.
The above risk exposure is mitigated by the Group through the diversification across a large portfolio of
insurance contracts. The variability of risks is also reduced by careful selection and implementation of
underwriting strategy guidelines, as well as the use of reinsurance arrangements. Although the Group has
reinsurance coverage, it is not relieved of its direct obligations to policyholders and is thus exposed to credit risk
with respect to ceded insurance, to the extent that any reinsurer is unable to meet the obligations assumed
under such reinsurance arrangements.
For that reason, the creditworthiness of reinsurers is evaluated by considering their solvency and credit rating
and reinsurance arrangements are monitored and reviewed to ensure their adequacy as per the reinsurance
policy. In addition, counterparty risk assessment is performed on a frequent basis.
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3. Other risks (continued)
3.7 Insurance risk and re-insurance risk (continued)
Both EuroLife and GIC perform their annual stress tests (ORSA) which aim to ensure, among others, the
appropriate identification and measurement of risks, an appropriate level of internal capital in relation to each
company’s risk profile, and the application and further development of suitable risk management and internal
control systems.
3.8 Digital transformation and technology risk
Technology risk arises from system downtimes impacting customer service which may be due to inadequate,
failed, or unavailable systems, use of outdated, obsolete and unsupported systems, or systems which do not fully
support the requirements of business. The Group is implementing its Digital Transformation Programme,
involving changes to, or replacement of critical and/or outdated systems.
Digital transformation risk arises as banking models are rapidly evolving both locally and globally and available
technologies have resulted in the customers’ accelerated shift towards digital channels. Money transmission and
data driven integrated services are also forecast to rapidly evolve in the coming years. How the Group adapts to
these developments could impact the realisation of its market strategies and financial plans.
In the context of the overall business strategy, the Group assesses and develops its complementary technology
strategy to support operations and mitigate these risks. The Group’s policies, standards, governance and controls
undergo ongoing review to ensure continued alignment with the Group’s strategy for digital transformation. In
order to achieve this, the Group engages with appropriate external experts.
3.9 Climate Risk
Climate-related and environmental (C&E) risks may impact the financial services sector to varying degrees over
the short, medium and long term. The extent to which physical and transition risk might impact a financial
services firm will vary depending on firm business model, customer base, location as well as the transition
process to a low-carbon economy.
• Physical risk refers to the financial impact of a changing climate, including more frequent extreme
weather events and gradual changes in climate, as well as of environmental degradation, such as air,
water and land pollution, water stress, biodiversity loss and deforestation. Physical risk is categorised as
“acute” when it arises from extreme events, such as droughts, floods and storms, and “chronic” when it
arises from progressive shifts, such as increasing temperatures, sea-level rises, water stress, biodiversity
loss, land use change, habitat destruction and resource scarcity. This can directly result in, for example,
damage to property or reduced productivity, or indirectly lead to subsequent events, such as the
disruption of supply chains.
• Transition risk refers to an institution’s financial loss that can result, directly or indirectly, from the
process of adjustment towards a lower-carbon and more environmentally sustainable economy. This could
be triggered, for example, by a relatively abrupt adoption of climate and environmental policies,
technological progress or changes in market sentiment and preferences.
The Group has a dedicated team involved in developing the Group’s Sustainability agenda considering the
Group’s approach to environmental, social and governance (ESG) issues, and the Risk Management Function is
closely aligned with this initiative.
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3. Other risks (continued)
3.9 Climate Risk (continued)
Managing C&E Risks is a key area of focus under the ‘Environment’ Pillar of BOC PCL’s ESG Strategy (further
details on the Group’s ESG Strategy are disclosed in the ‘Business Overview’ Section within the Directors’
Report). During 2021, there has been growing regulatory focus on C&E risk management. In the EU, the ECB
released guidance in November 2020 on how banks should manage climate-related and environmental (C&E)
risks. The guidance sets out 13 supervisory expectations for institutions when formulating and implementing
their business strategy, governance and risk management frameworks with the ultimate aim of encouraging
greater transparency in C&E risk disclosures. During the first half of 2021, significant institutions, including the
Group, were requested to conduct a self-assessment of their current practices against the above expectations
and to submit implementation plans detailing how and when they would bring their practices into line with the
guide. The Group has developed a C&E Risks Implementation Plan, which is being updated, covering each of the
ECB’s priorities, including actions to address gaps highlighted in the self-assessment, across a multi-year
timeline. This plan was developed following engagement with key stakeholders from across the Group.
A number of actions have been lined up for implementation in 2022 as part of the Group’s implementation plan
including:
• Complete the initial qualitative risk identification exercise and update the risk taxonomy
• Complete the ESG data gap analysis and put in place a working plan for gathering the data
• Carry out further ESG relating training across all levels of BOC PCL
• Commence the process of incorporating C&E risks in the credit granting process
The Group will consider these risks in 2022 against its business model as part of the work to be completed and
design a framework for assessing the impact of these risks on the Group.
4. Capital management
The primary objective of the Group’s capital management is to ensure compliance with the relevant regulatory
capital requirements and to maintain healthy capital adequacy ratios to cover the risks of its business and
support its strategy and maximise shareholders’ value.
The capital adequacy framework, as in force, was incorporated through the Capital Requirements Regulation
(CRR) and Capital Requirements Directive IV (CRD IV) which came into effect on 1 January 2014 with certain
specified provisions implemented gradually. The CRR and CRD IV transposed the new capital, liquidity and
leverage standards of Basel III into the European Union’s legal framework. CRR establishes the prudential
requirements for capital, liquidity and leverage for credit institutions. It is directly applicable in all EU member
states. CRD IV governs access to deposit-taking activities and internal governance arrangements including
remuneration, board composition and transparency. Unlike the CRR, member states were required to transpose
the CRD IV into national law and national regulators were allowed to impose additional capital buffer
requirements.
On 27 June 2019, the revised rules on capital and liquidity (CRR II and CRD V) came into force. As an amending
regulation, the existing provisions of CRR apply, unless they are amended by CRR II. Certain provisions took
immediate effect (primarily relating to Minimum Requirement for Own Funds and Eligible Liabilities (MREL)), but
most changes became effective as of June 2021. The key changes introduced consist of, among others, changes
to qualifying criteria for Common Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments,
introduction of requirements for MREL and a binding Leverage Ratio requirement (as defined in the CRR) and a
Net Stable Funding Ratio (NSFR).
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4. Capital management (continued)
The amendments that came into effect on 28 June 2021 are in addition to those introduced in June 2020 through
Regulation (EU) 2020/873, which among other brought forward certain CRR II changes in light of the COVID-19
pandemic. The main adjustments of Regulation (EU) 2020/873 that had an impact on the Group’s capital ratio
relate to the acceleration of the implementation of the new SME discount factor (lower RWAs), extending the
IFRS 9 transitional arrangements and introducing further relief measures to CET1 allowing to fully add back to
CET1 any increase in ECL recognised in 2020 and 2021 for non-credit impaired financial assets and phasing in
this starting from 2022 and advancing the application of prudential treatment of software assets as amended by
CRR II (which came into force in December 2020). In addition, Regulation (EU) 2020/873 introduced a temporary
treatment of unrealized gains and losses on exposures to central governments, to regional governments or to
local authorities measured at fair value through other comprehensive income which the Group elected to apply
and implemented from the third quarter of 2020.
In October 2021, the European Commission adopted legislative proposals for further amendments to CRR, CRD
IV and the BRRD (the ‘2021 Banking Package’). Amongst other things, the 2021 Banking Package would
implement certain elements of Basel III that have not yet been transposed into EU law. The 2021 Banking
Package includes:
• a proposal for a Regulation (sometimes known as “CRR III”) to make amendments to CRR with regard to
(amongst other things) requirements on credit risk, credit valuation adjustment risk, operational risk,
market risk and the output floor;
• a proposal for a Directive (sometimes known as “CRD VI”) to make amendments to CRD IV with regard
to (amongst other things) requirements on supervisory powers, sanctions, third-country branches and
ESG risks; and
• a proposal for a Regulation to make amendments to CRR and the BRRD with regard to (amongst other
things) requirements on the prudential treatment of G-SII groups with a multiple point of entry resolution
strategy and a methodology for the indirect subscription of instruments eligible for meeting the MREL
requirements.
The 2021 Banking Package is subject to amendment in the course of the EU’s legislative process; and its scope
and terms may change prior to its implementation. In addition, in the case of the proposed amendments to CRD
IV and the BRRD, their terms and effect will depend, in part, on how they are transposed in each member state.
As a general matter, it is likely to be several years until the 2021 Banking Package begins to be implemented
(currently expected in 2025); and certain measures are expected to be subject to transitional arrangements or to
be phased in over time.
The CET1 ratio of the Group as at 31 December 2021 stands at 15.14% and the Total Capital ratio at 20.01% on
a transitional basis. The ratios as at 31 December 2021 include profits for the year ended 31 December 2021.
Minimum CET1 Regulatory Capital Requirements 2021 2020*
Pillar I – CET1 Requirement 4.50% 4.50%
Pillar II – CET1 Requirement 1.69% 1.69%
Capital Conservation Buffer (CCB)** 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer 1.00% 1.00%
Minimum CET1 Regulatory Requirements 9.69% 9.69%
* As amended in April 2020 by ECB SREP amending decision following COVID-19 outbreak
** Fully phased in as of 1 January 2019
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4. Capital management (continued)
Minimum Total Capital Regulatory Requirements 2021 2020
Pillar I – Total Capital Requirement 8.00% 8.00%
Pillar II – Total Capital Requirement 3.00% 3.00%
Capital Conservation Buffer (CCB)* 2.50% 2.50%
Other Systematically Important Institutions (O-SII) Buffer 1.00% 1.00%
Minimum Total Capital Regulatory Requirements 14.50% 14.50%
* Fully phased in as of 1 January 2019
The minimum Pillar I total capital requirement is 8.00% and may be met, in addition to the 4.50% CET1
requirement, with up to 1.50% by AT1 capital and with up to 2.00% by T2 capital.
The Group is also subject to additional capital requirements for risks which are not covered by the Pillar I capital
requirements (Pillar II add-ons). Applicable Regulation allows a part of the said Pillar II Requirements (P2R) to be
met also with AT1 and T2 capital and does not require solely the use of CET1.
The ECB has also provided non-public guidance for an additional Pillar II CET1 buffer.
The Group is subject to a 3% Pillar I Leverage ratio requirement.
The above minimum ratios apply for both BOC PCL and the Group.
The capital position of the Group and BOC PCL as at 31 December 2021 exceeds both their Pillar I and their Pillar
II add-on capital requirements. However, the Pillar II add-on capital requirements are a point-in-time
assessment and therefore are subject to change over time. Further information is provided in section ‘Capital
Base’ of the Directors’ Report.
The CBC, in accordance with the Macroprudential Oversight of Institutions Law of 2015, sets, on a quarterly
basis, the CCyB rates in accordance with the methodology described in this law. The CBC has set the level of the
CCyB rate for risk weighted exposures in Cyprus at 0.00% for the years 2020 and 2021 as well as for the first
quarter of year 2022. The CCyB for the Group for 2021 has been calculated at 0.00%.
In accordance with the provisions of this law, the CBC is also the responsible authority for the designation of
banks that are Other Systemically Important Institutions (O-SIIs) and for the setting of the O-SII Buffer
requirement for these systemically important banks. BOC PCL has been designated as an O-SII and the CBC
initially set the O-SII Buffer at 2.00%, revised to 1.50% in November 2021 with effect from 1 January 2022.
This buffer is being phased in gradually, having started from 1 January 2019 at 0.50% and increasing by 0.50%
every year thereafter, until being fully implemented. In April 2020, the CBC decided to delay the phasing in of
the O-SII Buffer on 1 January 2021 and 1 January 2022 by 12 months. Consequently and following the revision
to 1.50%, the O-SII Buffer will be fully phased in on 1 January 2023, instead of 1 January 2022 as originally set,
by 0.25% each year.
The EBA final guidelines on SREP and supervisory stress testing and the Single Supervisory Mechanism’s (SSM)
2018 SREP methodology provide that own funds held for the purposes of Pillar II Guidance (P2G) cannot be used
to meet any other capital requirements (Pillar I, Pillar II requirements or the combined buffer requirement), and
therefore cannot be used twice.
As part of the relaxation measures following the COVID-19 outbreak, on 12 March 2020, the ECB and the EBA
also announced that banks are temporarily allowed to operate below the level of capital defined by Pillar II
Guidance (P2G), the CCB and the CCyB. In July 2020, the ECB committed to allow banks to operate below P2G
and the CBR until end of 2022, without automatically triggering supervisory actions. In February 2022 the ECB
announced that it will not allow banks to operate below the level of capital defined by their P2G beyond
December 2022.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Additional Risk and Capital Management Disclosures (unaudited)
352
4. Capital management (continued)
In the context of the annual SREP conducted by the ECB in 2021, and based on the final 2021 SREP decision
received in February 2022, the Pillar II requirement was set at 3.26%, compared to the previous level of 3.00%.
The additional P2R add-on of 0.26% relates to ECB’s prudential provisioning expectations as per the 2018 ECB
Addendum and subsequent ECB announcements and press release in July 2018 and August 2019. This
component of the P2R add-on takes into consideration Project Helix 3. It is dynamic and can be reduced during
2022 on the basis of in-scope NPEs and level of provisioning.
As a result, the Group’s minimum phased-in CET1 capital ratio was set at 10.08% compared to the previous level
of 9.69% (comprising a 4.50% Pillar I requirement, a 1.83% P2R requirement, the CCB of 2.50% and the O-SII
Buffer of 1.25%) and the Group’s phased-in Total Capital requirement was set at 15.01% compared to the
previous level of 14.50% (comprising an 8.00% Pillar I requirement, of which up to 1.50% can be in the form of
AT1 capital and up to 2.00% in the form of T2 capital, a 3.26% P2R, the CCB of 2.50% and the O-SII Buffer of
1.25%). The ECB has also provided revised lower non-public guidance for an additional Pillar II CET1 buffer. The
new SREP requirements are effective from 1 March 2022.
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd and Eurolife Ltd, comply with the
requirements of the Superintendent of Insurance including the minimum solvency ratio. The regulated UCITS
management company of the Group, BOC Asset Management Ltd, complies with the regulatory capital
requirements of the Cyprus Securities & Exchange Commission (CySEC) laws and regulations. The regulated
investment firm (CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd (CISCO), complies
with the minimum capital adequacy ratio requirements.
The capital position of the Group and BOC PCL as at the reporting date (after applying the transitional
arrangements) is presented below:
Regulatory capital
Group BOC PCL
31 December
2021
5
31 December
2020
6
31 December
2021
5
31 December
2020
6
€000 €000 €000 €000
Transitional Common Equity Tier 1
(CET1)
7
1,619,559
1,722,751 1,592,455
1,688,296
Transitional Additional Tier 1 capital
(AT1)
220,000
220,000 220,000
220,000
Tier 2 capital (T2) 300,000
192,248 300,000
250,000
Transitional Total Regulatory
Capital
2,139,559
2,134,999 2,112,455
2,158,296
Risk weighted assets – credit risk
8
9,678,741
10,504,937 9,697,351
10,516,023
Risk weighted assets – market risk -
- -
-
Risk weighted assets – operational risk 1,015,488
1,131,438 995,450
1,078,575
Total risk weighted assets 10,694,229
11,636,375 10,692,801
11,594,598
% % % %
Transitional Common Equity Tier 1
ratio
15.14
14.80 14.89
14.56
Transitional Total Capital ratio 20.01
18.35 19.76
18.61
Leverage ratio 7.45
9.08 7.35
8.93
5
Includes profits for the year ended 31 December 2021.
6
As per Annual Report 2020 and Pillar III Disclosures 2020.
7
CET1 includes regulatory deductions, comprising, amongst others, intangible assets amounting to €30,032 thousand for the Group and €26,452 thousand for BOC PCL as at 31 December
2021 (2020: €27,171 thousand for the Group and €24,269 thousand for BOC PCL). As at 31 December 2021 an amount of €15,394 thousand is considered prudently valued for CRR
purposes and it is not deducted from CET1 (2020:€21,985 thousand).
8
Includes Credit Valuation Adjustments (CVA).
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Additional Risk and Capital Management Disclosures (unaudited)
353
4. Capital management (continued)
The capital ratios of the Group and BOC PCL as at the reporting date on a fully loaded basis are presented below:
Fully loaded
Group BOC PCL
31 December
2021
5,9
31 December
2020
6,9
31 December
2021
5,9
31 December
2020
6,9
% % % %
Common Equity Tier 1 ratio 13.75
12.94 13.49
12.69
Total capital ratio 18.69
16.74 18.43
16.83
Leverage ratio 6.80
8.01 6.70
7.86
During the year ended 31 December 2021 CET1 ratio was negatively affected mainly by the phasing- in of IFRS 9
transitional adjustments on 1 January 2021, provisions and impairments, the prudential charge relating to the
Group’s foreclosed assets of approximately 32 bps (explained below), costs relating to the tender process for the
Old Tier 2 Capital Notes and the cost of the Voluntary Staff Exit Plan, and was positively affected by pre-provision
income, the impact of NPE transactions, the movement in other prudential items and the decrease in risk-
weighted assets. As a result, the CET1 ratio has increased by 34 bps during the year ended 31 December 2021.
The ECB, as part of its supervisory role, completed an onsite inspection and review on the value of the Group’s
foreclosed assets with reference date 30 June 2019. The findings relate to a prudential charge which will
decrease based on BOC PCL’s progress in disposing the properties in scope. The amount is being directly
deducted from own funds since 30 June 2021, resulting in a decrease in the Group’s CET1 ratio by approximately
44 bps as at 30 June 2021 and reduced to 32 bps as at 31 December 2021 mainly following impairments taken.
In April 2021, the Company issued €300 million unsecured and subordinated Tier 2 Capital Notes (the ‘New T2
Notes’) and immediately after, the Company and BOC PCL entered into an agreement pursuant to which the
Company on-lent to BOC PCL the entire €300 million proceeds of the issue of the New T2 Notes on terms
substantially identical to the terms and conditions of the New T2 Notes. At the same time, BOC PCL invited the
holders of its €250 million Fixed Rate Reset Tier 2 Capital Notes due January 2027 (the ‘Old T2 Notes’) to tender
their Old T2 Notes for purchase by BOC PCL, after which Old T2 Notes of €43 million remained outstanding.
As a result of the issuance of €300 million unsecured and subordinated Tier 2 Capital Notes and the main drivers
for CET1 as explained above, the Group's Total Capital ratio increased by 166 bps.
At a meeting held on 30 November 2021, the Board of Directors resolved to exercise BOCPCL’s option to redeem
the remaining nominal amount outstanding of the Old T2 Notes. The outstanding Old T2 Notes were redeemed on
19 January 2022.
Transitional arrangements
The Group has elected in prior years to apply the ‘static-dynamic’ approach in relation to the transitional
arrangements for the initial application of IFRS 9 for regulatory capital purposes, where the impact on the
impairment amount from the initial application of IFRS 9 on the capital ratios is phased in gradually. The ‘static-
dynamic’ approach allows for recalculation of the transitional adjustment periodically on Stage 1 and Stage 2
loans, so as to reflect the increase of the ECL provisions within the transition period. The Stage 3 ECL remains
static over the transition period as per the impact upon initial recognition.
The amount added each year for the ‘static component’ decreases based on a weighting factor until the impact of
IFRS 9 is fully absorbed back to CET1 at the end of the five years. The cumulative impact on the capital position
as at 31 December 2020 was 30% and as at 31 December 2021 was 50% of the impact on the impairment
amounts from the initial application of IFRS 9. This will increase to 75% (cumulative) for year 2022 and will be
fully phased in (100%) by 1 January 2023.
9
IFRS 9 and application of the temporary treatment of certain FVOCI instruments in accordance with Article 468 of CRR fully loaded.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Additional Risk and Capital Management Disclosures (unaudited)
354
4. Capital management (continued)
Following the June 2020 amendments to the CRR in relation to the dynamic component a 100% add back of IFRS
9 provisions is allowed for the years 2020 and 2021, reducing to 75% in 2022, to 50% in 2023 and to 25% in
2024. The calculation at each reporting period is made against Stage 1 and Stage 2 provisions as at 1 January
2020, instead of 1 January 2018. The calculation of the ‘static component’ has not been amended.
In relation to the temporary treatment of unrealized gains and losses for certain exposures measured at fair
value through other comprehensive income, Regulation EU 2020/873 allows institutions to remove from their
CET1 the amount of unrealized gains and losses accumulated since 31 December 2019, excluding those of
financial assets that are credit-impaired. The relevant amount is removed at a scaling factor of 100% from
January to December 2020, reduced to 70% from January to December 2021 and to 40% from January to
December 2022. The Group applies the temporary treatment from the third quarter of 2020.
Minimum Requirement for Own Funds and Eligible Liabilities (MREL)
In December 2021, BOC PCL received notification from the SRB and CBC of the final decision for the binding
MREL for BOC PCL, determined as the preferred resolution point of entry. As per the decision, the final MREL
requirement is set at 23.74% of risk weighted assets and 5.91% of Leverage Ratio Exposure (LRE) (as defined in
the CRR) and must be met by 31 December 2025. Furthermore, BOC PCL must comply by 1 January 2022 with
an interim requirement of 14.94% of risk weighted assets and 5.91% of LRE. The own funds used by BOC PCL to
meet the Combined Buffer Requirement (CBR) are not eligible to meet its MREL requirements expressed in terms
of risk weighted assets. BOC PCL must comply with the MREL requirement at the consolidated level, comprising
BOC PCL and its subsidiaries. The decision is subject to annual review by the competent authorities.
The MREL ratio calculated according to the SRB’s eligibility criteria currently in effect, and based on internal
estimate, stood at 19.31% of RWAs as at 31 December 2021 (and at 18.44% of RWAs as at 1 January 2022) and
at 9.87% of LRE as at 31 December 2021 (and at 9.56% of LRE as at 1 January 2022). The MREL ratio
expressed as a percentage of RWAs does not include capital used to meet the CBR amount which stood at 3.50%
as at 31 December 2021, increased to 3.75% on 1 January 2022 and is expected to increase to 4.00% on 1
January 2023.
The MREL requirement is in line with BOC PCL’s expectations and funding plans.
5. Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment
Process (ILAAP), Pillar II and Supervisory Review and Evaluation Process (SREP)
The Group prepares annual ICAAP and ILAAP packages. Both reports for 2021 are in progress and will be
submitted to the ECB by the end of April 2022 once approved by the Board of Directors.
The Group also undertakes quarterly reviews of its ICAAP results (with reference date 30 June and 30
September) as well as on an ad-hoc basis if needed, which are submitted to the ALCO and the Risk Committee of
the Board of Directors, considering the latest actual and forecasted information. During the quarterly review, the
Group’s risk profile and risk management policies are reviewed and any material changes/developments since the
annual ICAAP exercise are assessed in terms of capital adequacy. Both the annual ICAAP for 2020 and the
quarterly ICAAP reviews, undertaken in 2021, indicated that the Group has sufficient capital and available
mitigants to support its risk profile and its business and to enable it to meet its regulatory requirements, both
under a baseline and stress conditions scenarios.
The Group also undertakes a quarterly review for the ILAAP through quarterly stress tests submitted to the ALCO
and the Risk Committee of the Board of Directors. Any material changes since the year-end are assessed in
terms of liquidity and funding. The quarterly review identifies whether the Group has an adequate liquidity buffer
to cover the stress outflows. The Group’s ILAAP analysis demonstrates that the volume and capacity of liquidity
resources available to the Group are adequate. Both the annual ILAAP for 2020 and the quarterly ILAAP reviews
indicated that BOC PCL’s liquidity position is at a very comfortable level. BOC PCL maintains liquidity resources
which are adequate to ensure its ability to meet obligations as they fall due under ordinary and stressed
conditions.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Additional Risk and Capital Management Disclosures (unaudited)
355
5. Internal Capital Adequacy Assessment Process (ICAAP), Internal Liquidity Assessment
Process (ILAAP), Pillar II and Supervisory Review and Evaluation Process (SREP) (continued)
The ECB, as part of its supervisory role, has been conducting the SREP and other inspections (onsite/
off-site/ targeted reviews/ deep-dives) on the Group. SREP is a holistic assessment of, amongst other
things, the Group’s business model, internal governance and institution-wide control arrangements, risks to
capital and adequacy of capital to cover these risks and risks to liquidity and adequacy of liquidity resources to
cover these risks. The objective of the SREP is for the ECB to form an up-to-date supervisory view of the Group’s
risks and viability and to form the basis for supervisory measures and dialogue with the Group. Αs a result of
these supervisory processes, additional capital and other requirements could be imposed on the Group, including
a revision of the level of Pillar II add-ons as the Pillar II add-ons capital requirements are a point-in-time
assessment and therefore subject to change over time.
The Group participated in the ECB SREP Stress Test of 2021. The exercise was initiated on 29 January
2021 with the announcement of the macro assumptions of the stress tests. The baseline scenario for EU
countries was based on the projections from the national central banks on December 2020. The adverse scenario
assumed the materialisation of the main financial stability risks that have been identified by the European
Systemic Risk Board (ESRB) and which the EU banking sector is exposed to and reflects recent risk assessments
by the EBA.
The ECB published on 30 July 2021 the results of the stress test. As per the relevant ECB press release ‘the
results of the 2021 stress test, which show that the euro area banking system is resilient to adverse economic
developments. Banks were in better shape at the start of the exercise than they were three years ago, but
capital depletion at the system level was higher’. As in previous years, the stress test is not a pass/fail exercise.
By its standard procedures, the ECB considers the quantitative performance in the adverse scenario as an input
when reconsidering the level of the Pillar II Guidance in its 2021 SREP assessment and the qualitative
performance as one aspect when holistically reviewing the Pillar II Requirement.
The stress test was based on a static balance sheet approach, thus using the Group’s financial and capital
position as at 31 December 2020 as a starting point. Given the static balance sheet methodology, the 2021 ECB
SREP Stress Test does not incorporate the impact of any capital accretive results post 31 December 2020.
The Group will be participating in 2022 in the ECB supervisory Climate risk Stress Test that will assess
how prepared banks are for dealing with financial and economic shocks stemming from climate risk. ECB
considers the test as a learning exercise for banks and supervisors alike. It aims to identify vulnerabilities, best
practices and challenges banks face when managing climate-related risk. This is not a pass-or-fail exercise, nor
does it have direct implications for banks’ capital levels. The results will feed into the Supervisory Review and
Evaluation Process (SREP) from a qualitative point of view.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
356
DEFINITIONS
Allowance for
expected loan credit
losses
Allowance for expected loan credit losses comprises: (i) allowance for expected
credit losses (ECL) on loans and advances to customers (including allowance for
expected credit losses on loans and advances to customers classified as non-
current assets held for sale), (ii) the residual fair value adjustment on initial
recognition of loans and advances to customers (including residual fair value
adjustment on initial recognition of loans and advances to customers held for
sale), (iii) allowance for expected credit losses on off-balance sheet exposures
(financial guarantees and commitments) disclosed on the balance sheet within
other liabilities and (iv) the aggregate fair value adjustment on loans and
advances to customers classified and measured at FVPL.
Cost to income ratio Cost to income ratio is calculated as the total staff costs (excluding ‘Restructuring
costs – Voluntary Staff Exit Plan (VEP)’) (on an underlying basis as reconciled in
the table further below), special levy on deposits and other levies/contributions
and other operating expenses (excluding ‘Advisory and other restructuring costs-
organic’, ‘Restructuring and other costs relating to NPE sales’, and ‘Net
reversals/(provisions) for litigation, claims, regulatory and other matters’) (on an
underlying basis as reconciled in the table further below) divided by total income
as per the underlying basis (as defined below).
Digitally engaged
customers ratio
This is the ratio of digitally engaged individual customers to the total number of
individual customers. Digitally engaged customers are the individuals who use
the digital channels of BOC PCL (mobile banking app, browser and ATMs) to
perform banking transactions, as well as digital enablers such as a bank-issued
card to perform online card purchases, based on an internally developed
scorecard.
Gross loans Gross Loans comprise: (i) gross loans and advances to customers measured at
amortised cost before the residual fair value adjustment on initial recognition
(including loans and advances to customers classified as non-current assets held
for sale) and (ii) loans and advances to customers classified and measured at
FVPL adjusted for the aggregate fair value adjustment.
Gross loans are reported before the residual fair value adjustment on initial
recognition relating mainly to loans acquired from Laiki Bank (calculated as the
difference between the outstanding contractual amount and the fair value of
loans acquired at acquisition).
Interest earning
assets
Interest earning assets include: cash and balances with central banks, plus loans
and advances to banks, plus net loans and advances to customers (including net
loans and advances to customers classified as non-current assets held for sale)
(as defined below), plus investments (excluding equities and mutual funds).
Leverage ratio The leverage ratio is the ratio of tangible total equity (including Other equity
instruments) to total assets as presented on the balance sheet.
Loan credit losses Loan credit losses comprise: (i) credit losses to cover credit risk on loans and
advances to customers, (ii) net gains on derecognition of financial assets
measured at amortised cost and (iii) net gains on loans and advances to
customers at FVPL, for the year.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
357
Loan credit losses
charge (cost of risk)
Loan credit losses charge (cost of risk) (year to date) is calculated as the loan
credit losses (as defined) (annualised based on year to date days) divided by the
average gross loans (as defined). The average gross loans are calculated as the
average of the opening balance and the closing balance for the year.
Net fee and
commission income
over total income
Fee and commission income less fee and commission expense divided by total
income (as defined).
Net Interest Margin Net interest margin is calculated as the net interest income (per the underlying
basis) (annualised based on year to date days) divided by the quarterly average
interest earning assets (as defined). Quarterly average interest earning assets
exclude interest earning assets of any discontinued operations at each quarter
end, if applicable.
Net loans and
advances to
customers
Net loans and advances to customers comprise gross loans (as defined) net of
allowance for expected loan credit losses (as defined, but excluding allowance for
expected credit losses on off-balance sheet exposures disclosed on the balance
sheet within other liabilities).
Net loans to
deposits ratio
Net loans to deposits ratio is calculated as the gross loans (as defined) net of
allowance for expected loan credit losses (as defined), divided by customer
deposits.
New lending
New lending includes the disbursed amounts of the new and existing non-
revolving facilities (excluding forborne or re-negotiated accounts) as well as the
average year to date change (if positive) of the current accounts and overdraft
facilities between the balance at the beginning of the period and the end of the
period. Recoveries are excluded from this calculation since their overdraft
movement relates mostly to accrued interest and not to new lending.
Non-performing
exposures (NPEs)
As per the EBA standards and European Central Bank’s (ECB) Guidance to Banks
on Non-Performing Loans (which was published in March 2017), NPEs are defined
as those exposures that satisfy one of the following conditions:
(i) The borrower is assessed as unlikely to pay its credit obligations in
full without the realisation of the collateral, regardless of the
existence of any past due amount or of the number of days past due.
(ii) Defaulted or impaired exposures as per the approach provided in the
Capital Requirement Regulation (CRR), which would also trigger a
default under specific credit adjustment, diminished financial
obligation and obligor bankruptcy.
(iii) Material exposures as set by the Central Bank of Cyprus (CBC), which
are more than 90 days past due.
(iv) Performing forborne exposures under probation for which additional
forbearance measures are extended.
(v) Performing forborne exposures previously classified as NPES that
present more than 30 days past due within the probation period.
From 1 January 2021 two regulatory guidelines came into force that affect NPE
classification and Days-Past-Due calculation. More specifically, these are the RTS
on the Materiality Threshold of Credit Obligations Past-Due (EBA/RTS/2016/06),
and the Guideline on the Application of the Definition of Default under article 178
(EBA/GL/2016/07).
The Days-Past-Due (DPD) counter begins counting DPD as soon as the arrears or
excesses of an exposure reach the materiality threshold (rather than as of the
first day of presenting any amount of arrears or excesses). Similarly, the counter
will be set to zero when the arrears or excesses drop below the materiality
threshold. Payments towards the exposure that do not reduce the
arrears/excesses below the materiality threshold, will not impact the counter.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
358
For retail debtors, when a specific part of the exposures of a customer that fulfils
the NPE criteria set out above is greater than 20% of the gross carrying amount
of all on-balance sheet exposures of that customer, then the total customer
exposure is classified as non-performing; otherwise only the specific part of the
exposure is classified as non-performing.
For non-retail debtors, when an exposure fulfils the NPE criteria set out above,
then the total customer exposure is classified as non-performing.
Material arrears/excesses are defined as follows:
- Retail exposures: Total arrears/excess amount greater than €100
- Exposures other than retail: Total arrears/excess amount greater than
€500
and the amount in arrears/excess is at least 1% of the customer’s total
exposure.
The NPEs are reported before the deduction of allowance for expected loan credit
losses (as defined).
Non-recurring items Non-recurring items as presented in the ‘Unaudited Consolidated Income
Statement on the underlying basis’ relate to: (i) Advisory and other restructuring
costs – organic, (ii) Provisions/net loss relating to NPE sales, (iii) Restructuring
and other costs relating to NPE sales, and (iv) Restructuring costs – Voluntary
Staff Exit Plan (VEP).
NPE coverage ratio The NPE coverage ratio is calculated as the allowance for expected loan credit
losses (as defined) over NPEs (as defined).
NPE ratio The NPE ratio is calculated as the NPEs (as defined) divided by gross loans (as
defined).
Operating profit Operating profit (on an underlying basis) comprises profit before loan credit
losses (as defined), impairments of other financial and non-financial assets,
reversals net of provisions for litigation, claims, regulatory and other matters,
tax, (profit)/loss attributable to non-controlling interests and non-recurring items
(as defined).
Operating profit
return on average
assets
Operating profit return on average assets is calculated as the annualised (based
on year to date days) operating profit (on an underlying basis) (as defined)
divided by the quarterly average of total assets for the relevant period. Average
total assets exclude total assets of discontinued operations at each quarter end,
if applicable.
Profit/(loss) after
tax and before non-
recurring items
(attributable to the
owners of the
Company)
Profit/(loss) after tax and before non-recurring items (attributable to the owners
of the Company) is the operating profit (as defined) adjusted for loan credit
losses (as defined), impairments of other financial and non-financial assets, net
reversal/(provisions) for litigation, claims, regulatory and other matters, tax and
(profit)/loss attributable to non-controlling interests.
Profit/(loss) after
tax – organic
(attributable to the
owners of the
Company)
Profit/(loss) after tax - organic (attributable to the owners of the Company) is the
profit/(loss) after tax and before non-recurring items (as defined) (attributable to
the owners of the Company), except for the ‘Advisory and other restructuring
costs – organic’.
Return on Tangible
Equity (ROTE)
Return on Tangible Equity (ROTE) is calculated as Profit/(loss) after tax and
before non-recurring items (attributable to the owners of the Company) (as
defined) per the underlying basis (annualised), divided by the quarterly average
of Shareholders’ equity minus intangible assets at each quarter end.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
359
Total income Total income on the underlying basis comprises the total of net interest income,
net fee and commission income, net foreign exchange gains, net gains on financial
instrument transactions and disposal/dissolution of subsidiaries and associates
(excluding net gains on loans and advances to customers at FVPL), insurance
income net of claims and commissions, net gains/(losses) from revaluation and
disposal of investment properties, net gains on disposal of stock of property and
other income (on an underlying basis). A reconciliation of these amounts between
the statutory and the underlying bases is disclosed in the Director’s Report under
section ‘Group financial results on the underlying basis’.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
360
RECONCILIATIONS
For the purpose of the ‘Definitions and explanations of Alternative Performance Measures Disclosures’,
reference to ‘Note’ relates to the respective note in the Consolidated Financial Statements for the year
ended 31 December 2021.
1. (a) Reconciliation of Gross loans and advances to customers
2021 2020
€000 €000
Gross loans and advances to customers as per the underlying
basis (as defined above)
10,856,660
12,261,404
Reconciling items:
Residual fair value adjustment on initial recognition (Note 45.4) (105,678)
(146,602)
Gross loans and advances to customers at amortised cost
classified as held for sale (Note 45.4)
(555,789)
(1,341,255)
Residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale (Note 45.4)
(19,090)
(46,675)
Loans and advances to customers measured at fair value through
profit or loss (Note 23)
(281,868)
(289,861)
Aggregate fair value adjustment on loans and advances to
customers measured at fair value through profit or loss
(53,700)
(36,408)
Gross loans and advances to customers at amortised cost
as per the Consolidated Financial Statements (Note 23)
9,840,535
10,400,603
1. (b) Reconciliation of Gross loans and advances to customers classified as held for sale
2021 2020
€000 €000
Gross loans and advances to customers classified as held for sale
as per the underlying basis
574,879
1,387,930
Reconciling items:
Residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale (Note 45.4)
(19,090)
(46,675)
Loans and advances to customers classified as held for
sale as per the Consolidated Financial Statements (Note 29)
555,789
1,341,255
2. (a) Reconciliation of Allowance for expected credit losses on loans and advances to
customers (ECL)
2021 2020
€000 €000
Allowance for expected credit losses on loans and advances to
customers (ECL) as per the underlying basis (as defined above)
791,830
1,901,978
Reconciling items:
Residual fair value adjustment on initial recognition (Note 45.4) (105,678)
(146,602)
Aggregate fair value adjustment on loans and advances to
customers measured at fair value through profit or loss
(53,700)
(36,408)
Allowance for expected credit losses on loans and advances to
customers classified as held for sale (Note 45.7)
(305,419)
(848,218)
Residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale (Note 45.4)
(19,090)
(46,675)
Provisions for financial guarantees and commitments (Note 34) (21,945)
(19,658)
Allowance for ECL for impairment of loans and advances to
customers as per the Consolidated Financial Statements
(Note 23)
285,998
804,417
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
361
2. (b) Reconciliation of Allowance for expected credit losses on loans and advances to
customers classified as held for sale (ECL)
2021 2020
€000 €000
Allowance for expected credit losses on loans and advances to
customers (ECL) classified as held for sale as per the underlying
basis
324,509
894,893
Reconciling items:
Residual fair value adjustment on initial recognition on loans and
advances to customers classified as held for sale (Note 45.4)
(19,090)
(46,675)
Allowance for ECL for impairment of loans and advances to
customers classified as held for sale as per the
Consolidated Financial Statements (Note 29)
305,419
848,218
3. Reconciliation of NPEs
2021 2020
€000 €000
NPEs as per the underlying basis (as defined above) 1,343,308
3,085,646
Reconciling items:
Loans and advances to customers (NPEs) classified as held for
sale (Note 1 below)
(553,619)
(1,312,165)
Residual fair value adjustment on initial recognition of loans and
advances to customers (NPEs) classified as held for sale (Note 2
below)
(19,030)
(47,011)
Loans and advances to customers measured at fair value through
profit or loss (NPEs)
(122,972)
(118,479)
POCI (NPEs) (Note 3 below) (70,814)
(227,065)
Residual fair value adjustment on initial recognition of loans and
advances to customers (NPEs) classified as Stage 3 (Note 45.4)
(3,530)
(9,376)
Stage 3 gross loans and advances to customers at
amortised cost as per the Consolidated Financial
Statements (Note 45.4)
573,343
1,371,550
NPE ratio
NPEs (as per table above) (€000) 1,343,308
3,085,646
Gross loans and advances to customers (as per table above)
(€000)
10,856,660
12,261,404
Ratio of NPE/Gross loans (%) 12.4%
25.2%
Note 1: Gross loans at amortised cost after residual fair value adjustment on initial recognition
classified as held for sale include an amount of €474,459 thousand Stage 3 loans (2020: €1,130,937
thousand Stage 3 loans) and an amount of €79,160 thousand POCI – Stage 3 loans (out of a total of
€79,255 thousand POCI loans) (2020: €181,228 thousand POCI – Stage 3 loans (out of a total of
€181,984 thousand POCI loans)) as disclosed in Note 45.4 of the Consolidated Financial Statements
for the year ended 31 December 2021.
Note 2: Residual fair value adjustment on initial recognition of loans and advances to customers
classified as held for sale includes an amount of €2,079 thousand for Stage 3 loans (2020: €7,650
thousand for Stage 3 loans) and an amount of €16,951 thousand for POCI – Stage 3 loans (out of a
total of €16,954 thousand POCI loans) (2020: €39,361 thousand for POCI – Stage 3 loans (out of a
total of €39,381 thousand POCI loans)) as disclosed in Note 45.4 of the Consolidated Financial
Statements for the year ended 31 December 2021.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
362
3. Reconciliation of NPEs (continued)
Note 3: Gross loans and advances to customers at amortised cost before residual fair value
adjustment on initial recognition include an amount of €70,814 thousand POCI – Stage 3 loans (out
of a total of €159,755 thousand POCI loans) (2020: €227,065 thousand POCI – Stage 3 loans (out
of a total of €335,852 thousand POCI loans)) as disclosed in Note 45.4 of the Consolidated Financial
Statements for the year ended 31 December 2021.
4. Reconciliation of Gross Loans – Pro forma
2021
€000
Gross Loans (as per table 1 (a) above) 10,856,660
Reconciling items:
Gross loans and advances to customers classified as held for sale
(Project Helix 3 and Sinope) (Note 29 – Disposal Group 1 and 2)
(555,789)
Residual fair value adjustment on initial recognition of loans and advances to
customers classified as held for sale (Project Helix 3 and Sinope) (Note 45.4)
(19,090)
Gross loans and advances to customers – Pro forma 10,281,781
5. Reconciliation of NPEs – Pro forma
2021
€000
NPEs (as per table 3 above) 1,343,308
Reconciling items:
Gross loans and advances to customers (NPEs) classified as held for sale
(Project Helix 3 and Sinope) (Note 1 of table 3 above)
(553,619)
Residual fair value adjustment on initial recognition of loans and advances to
customers (NPEs) classified as held for sale (Project Helix 3 and Sinope) (Note
2 of table 3 above)
(19,030)
NPEs - Pro forma 770,659
NPE ratio – Pro forma 2021
NPEs - Pro forma (as per table above) (€000) 770,659
Gross loans and advances to customers - Pro forma (as per table above)
(€000)
10,281,781
Ratio of NPEs/Gross loans – Pro forma (%) 7.5%
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
363
6. Reconciliation of Loan credit losses
2021 2020
€000 €000
Loan credit losses as per the underlying basis 66,353
148,504
Reconciling items:
(Reversal of loan credit losses)/loan credit losses relating to
NPE sales, disclosed under non-recurring items within
‘Provisions/net loss relating to NPE sales’ under the underlying
basis
(12,579)
120,021
53,774
268,525
Loan credit losses (as defined) are reconciled to the statutory
basis as follows:
Credit losses to cover credit risk on loans and advances to
customers (Note 16)
40,341
275,080
Net gains on derecognition of financial assets measured at
amortised cost (Consolidated Income Statement)
(3,859)
(2,949)
Net losses/(gains) on loans and advances to customers at FVPL
(Note 11)
17,292
(3,606)
53,774
268,525
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
364
KEY PERFORMANCE RATIOS INFORMATION
For the purpose of the ‘Definitions and explanations of Alternative Performance Measures Disclosures’,
reference to ‘Note’ relates to the respective note in the Consolidated Financial Statements for the year
ended 31 December 2021.
1. Net Interest Margin
Reconciliation of the various components of net interest margin between the underlying basis and the
statutory basis is provided below:
1.1. Net interest income used in the calculation of NIM
2021 2020
€000 €000
Net interest income as per the underlying basis/statutory basis 296,300
329,998
1.2. Interest
earning
assets
31 December
2021
30 September
2021
30 June
2021
31 March
2021
31 December
2020
€000 €000 €000 €000 €000
Cash and balances with
central banks (Note 42)
9,230,883
8,750,254 8,227,491 6,926,347
5,653,315
Loans and advances to
banks (Note 42)
291,632
284,135 436,091
420,593
402,784
Loans and advances to
customers (Note 23)
9,836,405
9,787,136 9,966,542
9,959,849
9,886,047
Loans and advances to
customers held for sale
(Note 29)
250,370
249,667 -
471,628
493,037
Cash held for sale (Note
29)
-
- -
79,373
68,425
Prepayments, accrued
income and other
assets – Deferred
consideration receivable
(‘DPP’) (Note 28)
299,766
381,056 378,141
-
-
Investments
Debt securities (Note
20)
1,930,388
1,946,811 1,998,076
1,923,324
1,708,844
Less: Investments
which are not interest
bearing
(5,534)
(7,355) (7,531)
(18,883)
(18,618)
Total interest earning
assets
21,833,910
21,391,704 20,998,810
19,762,231
18,193,834
1.3. Quarterly
average
interest
earning
assets
(€000)
- 2021 20,436,098
- 2020 17,930,637
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
365
1. Net Interest Margin (continued)
1.4. Net interest margin (NIM) 2021 2020
Net interest income (as per table 1.1 above) (€000) 296,300
329,998
Quarterly average interest earning assets (as per table 1.3 above)
(€000)
20,436,098
17,930,637
NIM (%) 1.45%
1.84%
2. Cost to income ratio
2.1. Reconciliation of the various components of total expenses used in the cost to income ratio
calculation from the underlying basis to the statutory basis is provided below:
2021 2020
€000 €000
2.1.1. Reconciliation of Staff costs
Total Staff costs as per the underlying basis 202,487
195,227
Reclassifications for:
Staff costs – voluntary exit plans and other termination benefits,
separately presented under the underlying basis (Note 14)
16,146
5,825
Total Staff costs as per the statutory basis (Note 14) 218,633
201,052
2021 2020
€000 €000
2.1.2. Reconciliation of Other operating expenses
Other operating expenses as per the underlying basis 144,587
145,149
Reclassifications for:
Operating expenses and restructuring costs relating to the NPE sales,
presented within ‘Restructuring and other costs relating to NPE sales’
under the underlying basis
16,120
25,925
Net reversal/(provisions) for pending litigations, claims, regulatory and
other matters, separately presented under the underlying basis
(2,632)
7,202
Advisory and other restructuring costs – organic, separately presented
under the underlying basis
9,113
10,284
Other operating expenses as per the statutory basis (Note 15) 167,188
188,560
2021
2020
(restated)*
€000 €000
2.1.3. Special levy on deposits and other
levies/contributions
Special levy on deposits and other levies/contributions as per the
underlying basis/statutory basis (Note 15)
36,350
33,656
*
‘Special levy on deposits and other levies/contributions’ per the underlying basis for the year ended
31 December 2020 has been represented for the deferred tax credit levy of €3,445 thousand, which is
now presented within ‘Special levy on deposits and other levies/contributions’ in line with current year
presentation.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
366
2. Cost to income ratio (continued)
2.2. Reconciliation of the various components of total income (as defined) used in the cost to
income ratio calculation from the underlying basis to the statutory basis is provided below:
2021 2020
€000 €000
2.2.1. Reconciliation of Net fee and commission income
Total Net fee and commission income as per the underlying
basis/statutory basis
171,796
144,674
2021 2020
€000 €000
2.2.2. Reconciliation of Net foreign exchange gains and Net
gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates
Net foreign exchange gains and net gains/(losses) on financial
instruments transactions and disposal/dissolution of subsidiaries and
associates as per the underlying basis
24,306
14,650
Reclassifications for:
Net (losses)/gains on loans and advances to customers measured at fair
value through profit or loss (FVPL), disclosed within ‘Loan credit losses’
per the underlying basis (Note 11)
(17,292)
3,606
Net loss on early redemption of subordinated loan stock, disclosed within
‘Advisory and other restructuring costs – organic’ under the underlying
basis (Note 11)
(12,558)
-
Total Net foreign exchange gains and Νet (losses)/gains on financial
instrument transactions and disposal/dissolution of subsidiaries and
associates as per the statutory basis (see below)
(5,544)
18,256
Net foreign exchange gains as per the statutory basis 16,503
16,535
Net (losses)/gains on financial instrument transactions and
disposal/dissolution of subsidiaries and associates as per the statutory
basis (Note 11)
(22,047)
1,721
Total Net foreign exchange gains and Net (losses)/gains on financial
instrument transactions and disposal/dissolution of subsidiaries and
associates as per the statutory basis
(5,544)
18,256
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
367
2. Cost to income ratio (continued)
2021 2020
€000 €000
2.3 Total Income as per the underlying basis
Net interest income as per the underlying basis (as per table above) 296,300
329,998
Net fee and commission income as per the underlying basis (as per
table above)
171,796
144,674
Net foreign exchange gains and net gains/(losses) on financial
instrument transactions and disposal/dissolution of subsidiaries and
associates as per the underlying basis (as per table above)
24,306
14,650
Insurance income net of claims and commissions (as per the statutory
basis)
61,044
56,063
Net gains from revaluation and disposal of investment properties and on
disposal of stock of properties (as per the statutory basis)
11,468
6,690
Net loss from revaluation of investment properties classified as held for
sale, disclosed within ‘Provisions/net loss relating to NPE sales’ (as per
the underlying basis)
1,006
-
Other income (as per the statutory basis) 14,831
14,957
Total Income as per the underlying basis 580,751
567,032
2021
2020
(restated)*
€000 €000
2.4 Total Expenses as per the underlying basis
Staff costs as per the underlying basis (as per table above) 202,487
195,227
Special levy on deposits and other levies/contributions as per the
underlying basis (as per table above)
36,350
33,656
Other operating expenses as per the underlying basis (as per table
above)
144,587
145,149
Total Expenses as per the underlying basis 383,424
374,032
2021
2020
(restated)*
Cost to income ratio
Total expenses (as per table above) (€000) 383,424
374,032
Total income (as per table above) (€000) 580,751
567,032
Total expenses/Total income (%) 66%
66%
*
‘Special levy on deposits and other levies/contributions’ per the underlying basis for the year ended
31 December 2020 has been represented for the deferred tax credit levy of €3,445 thousand, which is
now presented in ‘Special levy on deposits and other levies/contributions’ in line with current year
presentation.
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
368
3. Operating profit return on average assets
The various components used in the determination of the operating profit return on average assets are
provided below:
31 December
2021
30 September
2021
30 June
2021
31 March
2021
31 December
2020
€000 €000 €000 €000 €000
Total assets used in
the computation of
the operating profit
return on average
assets per the
Consolidated Balance
Sheet
24,962,697
24,550,976
24,211,313
23,043,592
21,514,131
Quarterly average
total assets (€000)
2021 23,656,542
2020 21,190,819
2021
2020
(restated)*
Total income (as per table 2.3 above) (€000) 580,751
567,032
Total expenses (as per table 2.4 above) (€000) (restated*) (383,424)
(374,032)
Operating profit (€000) 197,327
193,000
Quarterly average total assets (€000) 23,656,542
21,190,819
Operating profit return on average assets (%) 0.8%
0.9%
*
Operating profit return on average assets restated for the effect of the representation of ‘Special levy
on deposits and other levies/contributions’ as described in table 2.4 above.
4. Basic earnings/(losses) after tax and before non-recurring items per share
attributable to the owners of the Company
The various components used in the determination of the ‘Basic earnings/(losses) after tax and before
non-recurring items per share attributable to the owners of the Company (€ cent)’ are provided below:
2021 2020
Profit/(loss) after tax and before non-recurring items (attributable to the
owner of the Company) per the underlying basis (as per table below)
(€000)
91,497
(9,477)
Weighted average number of shares in issue during the year, excluding
treasury shares (€000) (Note 18)
446,058
446,058
Basic earnings/(losses) after tax and before non-recurring items per
share attributable to the owners of the Company (€cent)
20.50
(2.12)
The reconciliation between the ‘Profit/(loss) after tax and before non-recurring items (attributable to the
owners of the Company)’ per the underlying basis to the ‘Profit/(loss) after tax (attributable to the
owners of the Company)’ per the statutory basis is provided in the table below:
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
369
4. Basic earnings/(losses) after tax and before non-recurring items per share
attributable to the owners of the Company (continued)
4.1. Reconciliation of Profit/(loss) after tax-attributable to the owners of the Company
2021 2020
€000 €000
Profit/(loss) after tax and before non-recurring items (attributable to the
owners of the Company) per the underlying basis
91,497
(9,477)
Reclassifications for:
Reversal loan credit losses /(loan credit losses) relating to NPE sales,
disclosed under non-recurring items within ‘Provisions/net loss relating
to NPE sales’ under the underlying basis (as per table 6 above)
12,579
(120,021)
Net loss from revaluation of investment properties classified as held for
sale, disclosed within ‘Provisions/net loss relating to NPE sales’ (as per
table 2.3 above)
(1,006)
-
Impairment loss relating to stock of properties of Project Helix 3,
separately disclosed under non-recurring items within ‘Provisions/net
loss relating to NPE sales’
(19,424)
-
Operating expenses and restructuring costs relating to the NPE sales,
presented within ‘Restructuring and other costs relating to NPE sales’
under the underlying basis (as per table 2.1.2 above)
(16,120)
(25,925)
Staff costs – voluntary exit plan and other termination benefits,
separately presented under the underlying basis (Note 14) (as per table
2.1.1 above)
(16,146)
(5,825)
Advisory and other restructuring costs – organic, separately presented
under the underlying basis (as per table 2.1.2 above)
(9,113)
(10,284)
Net loss on early redemption of Subordinated loan stock, disclosed
within ‘Advisory and other restructuring costs – organic’ under the
underlying basis (Note 11) (as per table 2.2.2 above)
(12,558)
-
Profit/(loss) after tax (attributable to the owners of the Company) per
the statutory basis
29,709
(171,532)
5. Return on tangible equity (ROTE) after tax and before non-recurring items
The various components used in the determination of ‘Return on tangible equity (ROTE) after tax and
before non-recurring items’ are provided below:
2021 2020
Profit/(loss) after tax and before non-recurring items (attributable to
the owners of the Company) per the underlying basis (as per table
4.1. above) (€000)
91,497
(9,477)
Quarterly average tangible total equity (as per table 5.2 below) (€000) 1,652,550
1,745,235
ROTE after tax and before non-recurring items (%) 5.5%
-0.5%
BANK OF CYPRUS HOLDINGS GROUP Annual Financial Report 2021
Definitions and explanations of Alternative Performance Measures Disclosures
370
5. Return on tangible equity (ROTE) after tax and before non-recurring items (continued)
5.1 Tangible total
equity
31 December
2021
30 September
2021
30 June
2021
31 March
2021
31 December
2020
€000 €000 €000 €000 €000
Equity attributable to
the owners of the
Company (as per the
statutory basis)
1,838,793
1,845,563 1,825,674 1,843,532
1,830,644
Less: Intangible assets
(as per the statutory
basis)
(184,034)
(183,280) (184,650)
(184,236)
(185,256)
Total tangible equity 1,654,759
1,662,283 1,641,024
1,659,296
1,645,388
5.2 Quarterly
average
tangible total
equity (€000)
- 2021 1,652,550
- 2020 1,745,235