Bank of Cyprus Public : Preliminary Group Financial Results for the year ended 31 December 2021 and Updated Medium Term Strategic Targets

Announcement

Preliminary Group Financial Results for the year ended 31 December 2021 and Updated Medium Term Strategic Targets

Nicosia, 21 February 2022

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014.

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Key Highlights for the year ended 31 December 2021

2021 Achievements and Medium Term Strategy

Positive Net Result

• Profit after tax and before non-recurring items of €91 mn
• Profit after tax of €30 mn

Careful Cost management

• Total operating expenses1 of €347 mn, broadly flat yoy
• Cost to income ratio1 at 60%, flat yoy

Strong Capital and Initiation of MREL Issuance

• CET1 ratio of 15.8%2,3 and Total Capital ratio of 20.8%2,3
• Successful refinancing of Tier 2 at a significantly lower coupon rate
• Inaugural issuance of €300 mn Senior Preferred notes; Interim MREL requirement as at 1 January 2022 achieved

Single Digit NPE ratio achieved a year earlier than anticipated

• NPE ratio reduced to 7.5%2 (3.1%2,4 net), following NPE sale (Helix 3) signed in November 2021

Updated Medium Term Strategic Targets

• ROTE >10% by 2025
• NPE ratio c.5% by end-2022 and <3% by end-2025
• Paving the way for dividend distribution5 from 2023 onwards
• Announcement of ESG targets; Carbon Neutral by 2030 and Net Zero by 2050

1. Excluding special levy on deposits and other levies/contributions
2. Pro forma for HFS
3. Allowing for IFRS 9 and temporary treatment for certain FVOCI instruments transitional arrangements
4. Calculated as NPEs net of provisions over net loans
5. Subject to performance and relevant approvals

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Key Highlights for the quarter ended 31 December 2021

Strong Recovery Continues

• 6.0%1 GDP growth in 4Q2021, well above the eurozone average of 4.6%
• New lending of €471 mn in 4Q2021, totalling €1.8 bn for FY2021, up 33% yoy, recovering towards pre- pandemic levels

Positive Operating Performance

• Total income of €154 mn for 4Q2021, up 11% qoq driven mainly by higher non-NII
• Operating profit of €55 mn for 4Q2021, up 33% qoq
• Profit after tax and before non-recurring items of €27 mn for 4Q2021
• Small-scaletargeted Voluntary Staff Exit Plan with one-off cost of €16 mn; gross annual savings of c.3%
• Profit after tax of €10 mn for 4Q2021

Operating Efficiency

• Total operating expenses2 of €87 mn for 4Q2021, broadly flat qoq
• Cost to income ratio2 at 57% for 4Q2021, down 7 p.p., supported by higher non-NII

Strong Capital and Liquidity

• CET1 ratio of 15.8%3,4 and Total Capital ratio of 20.8%3,4
• Deposits at €17.5 bn up 2% qoq; significant surplus liquidity of €6.4 bn

Single Digit NPE Ratio4

• NPE ratio reduced to 7.5%4 (3.1%4,5 net)
• €0.6 bn NPE sale (Helix 3) signed in November 2021
• Organic NPE reduction of c.€400 mn in FY2021
• 96% of performing loans6 under expired payment deferrals with an instalment due by 8 February 2022, presented no arrears

1. Source: Cyprus Statistical Service, Ministry of Finance
2. Excluding special levy on deposits and other levies/contributions
3. Allowing for IFRS 9 and temporary treatment for certain FVOCI instruments transitional arrangements
4. Pro forma for HFS
5. Calculated as NPEs net of provisions over net loans
6. As at 31 December 2021

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Group Chief Executive Statement

"2021 saw a strong recovery in the Cypriot economy after a period of pandemic-related disruption, providing an improved backdrop against which the Bank performed well. During the year we continued to support the country's return to growth, extending €1.8 bn of new loans, an increase of a third on the prior year and steadily recovering towards pre-pandemic levels. We generated a profit despite incurring restructuring costs. Having reached the important milestone of single digit NPEs we are now updating our medium term targets with a focus on creating value for our shareholders, including increasing our return on tangible equity target from 7% to over 10%, providing the foundations for a return of dividend distributions, subject to performance and relevant approvals.

Financial Performance in 2021

During the year, we generated total income of €581 mn and operating profits of €198 mn, whilst our cost of risk halved to 57 bps. We delivered a profit after tax and before non-recurring items of €91 mn. The reported result for the year was a net profit of €30 mn, after restructuring, non-recurring costs of €61 mn.

In 2021 we managed our cost base carefully and kept our total operating expenses below €350 mn, and our cost to income ratio stood at 60%, flat on the prior year.

We reduced our NPE ratio to 7.5% on a pro forma basis, much earlier than previously expected, following the completion of the sale of €1.3 bn NPEs in Project Helix 2 and the agreement for the sale of a further €0.6 bn NPEs in Project Helix 3, a profitable and capital accretive transaction. We also organically reduced NPEs by a further c.€400 mn in 2021. Overall, in 2021, we have reduced NPEs by 75% on a pro forma basis.

During the year we further strengthened the Bank's capital position. As at 31 December 2021, our capital ratios (on a transitional basis) were 20.8% for the Total Capital ratio and 15.8% for the CET1 ratio, on a pro forma basis. We successfully refinanced our Tier 2 Capital Notes in April 2021 and initiated MREL compliant issuances in June with €300 mn of senior preferred notes.

Shaping our business for the future

Our strategic pillars remain unchanged; growing revenues in a more capital efficient way; improving the operating model via further efficiencies; ensuring asset quality; and creating organisational resilience through a sustainable agenda. Our transformation plan will enable us to deliver on these strategic pillars whilst leveraging on our country-wide customer database. We are also at an advanced stage in the development of a digital platform that will allow us to serve our customers beyond banking and create new revenue streams.

The further repositioning of the Group, our positive performance during the year and the solid growth outlook for the Cyprus economy, has allowed us to update our targets for the medium term. We now expect to reduce our NPE ratio to c.5% by the end of 2022 and to less than 3% by the end of 2025. We reiterate our focus on creating shareholder value and increase our medium term return on tangible equity target to over 10%.

Sustainability will continue to be embedded in our culture. We commit to becoming carbon neutral ourselves by 2030 and to have net zero emissions by 2050, whilst at the same time we will support our customers and communities in this transition. The Bank has the commitment, the scale and the reach to deliver the desired change across Cyprus in the coming years.

Outlook

Our vision for the future of the Bank is clear and we remain committed to being part of the country's economic growth, which, together with the deployment and implementation of the Cyprus Recovery and Resilience Plan, is expected to be strong. We remain confident that our strategy will generate sustainable profitability and create shareholder value in the medium term."

Panicos Nicolaou

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A. Preliminary Group Financial Results - Statutory Basis

Unaudited Consolidated Income Statement for the year ended 31 December 2021

	2021	2020
	€000	€000
Turnover	755,220	765,095
Interest income	360,928	389,179
Income similar to interest income	27,621	47,530
Interest expense	(67,057)	(61,991)
Expense similar to interest expense	(25,192)	(44,720)
Net interest income	296,300	329,998
Fee and commission income	180,212	151,091
Fee and commission expense	(8,416)	(6,417)
Net foreign exchange gains	16,503	16,535
Net (losses)/gains on financial instrument transactions and disposal/dissolution of	(22,047)	1,721
subsidiaries and associates
Insurance income net of claims and commissions	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	13,296	8,189
Other income	14,831	14,957
	549,895	570,638
Staff costs	(218,633)	(201,052)
Special levy on deposits and other levies/contributions	(36,350)	(33,656)
Other operating expenses	(167,188)	(188,560)
	127,724	147,370
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	(40,341)	(275,080)
Credit losses of other financial instruments	(5,803)	(4,585)
Impairment net of reversals of non-financial assets	(49,456)	(37,586)
Profit/(loss) before share of profit from associates	35,983	(166,932)
Share of profit from associates	137	69
Profit/(loss) before tax	36,120	(166,863)
Income tax	(4,243)	(7,920)
Profit/(loss) after tax for the year	31,877	(174,783)
Attributable to:
Owners of the Company	29,709	(171,532)
Non-controlling interests	2,168	(3,251)
Profit/(loss) for the year	31,877	(174,783)
Basic and diluted profit/(loss) per share attributable to the owners of the
6.7	(38.5)
Company (€ cent)

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