Banking Sector. Dynamics. At a glance. Contents

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1 Issue 4, May 216 Banking Sector Dynamics Contents At a glance 1 Capital adequacy 2 Total assets 6 Total liabilities and deposits 8 Abbreviations 14 References 14 Definitions 14 At a glance Comfortably beating expectations, Cyprus officially exited the troika-funded Economic Adjustment Programme at the end of March 216. The economy recorded small positive growth in 215, a full year ahead of forecasts. Strongly correlated with the upturn in the economy, the banking sector also recorded significant progress, with both capital positions and liquidity improving. The very high levels of non-performing exposures (NPEs) remain the main challenge of the sector. Enhanced legislative tools facilitating the restructuring of NPEs are now in place (including the foreclosure and insolvency framework) and several major NPE restructuring deals have been achieved over the last few months. Additionally, two of the main sectors plagued with NPEs (real estate and construction) have shown positive signs of exiting a long period of recession. Since the beginning of the year, total deposits increased marginally by.37%. The deposit outflows after March 213 had resulted in a 27.8% decrease in total bank deposits in the period leading to December 215. Meanwhile, the deleveraging in the sector continues, as total loans decreased by 1.8% during the same period. Encouragingly BOC, HB and the Coops reported profits for the first quarter of 216. In a trading update, BOC reported that they expect decreases in their NPEs and profits of 5m, while the Coops also expect a decrease in their NPEs and profits of 27.5m. Hellenic Bank reported a profit of.3m and a QoQ decrease of.9% in their NPEs.

2 Capital adequacy Banks in Cyprus currently maintain healthy capital adequacy ratios. As of the end of 215, BOC, Coops, HB, Eurobank Cyprus and Alpha Bank Cyprus (ABCY) were all well capitalised, as measured by their Common Equity Tier 1 (CET1) ratios. The BOC CET1 ratio stood at 14.%. The CET1 ratio of the Cooperative Central Bank increased from 12.1% in 3Q215 to 15.6% in 4Q215. The additional capital raised through the 2m investment in HB in October 215, strengthened the CET1 ratio of the Bank to 14.8% as at the end of 215, up by 1% compared to the 3Q215 figures. At the same time, the CET1 ratio of Eurobank Cyprus and Alpha Bank Cyprus stood at 27.1% and 17.5% respectively, well above the minimum CET1 ratio of 8% as set by the Central Bank of Cyprus. The overall contained level of financial system stress in the euro area during 215 reflected an improving real economic outlook supported by ECB action allaying deflation fears that threatened to be harmful to both price and financial stability. (ECB, April 215) CET1 ratios 2 % 15 1 BOC HB Coops 5 31/3/214 3/6/214 3/9/214 31/12/214 31/3/215 3/6/215 3/9/215 31/12/215 CBC minimum requirement Banking sector average Source: BOC, CBC, Coops, HB Major shareholders of HB and BOC HB BOC Shareholder % Shareholder % Wargaming Public Company Ltd CPB FBO Third Point Hellenic Recovery Fund Cyprus Popular Bank Public Company Ltd Lamesa Holding S.A. (Renova Group affiliate) Demetra Investments Ltd 1. TD Asset Management EBRD 5.4 EBRD 5. Source: BOC, HB 2 Banking Sector Dynamics May 216

3 Funding needs of the Cypriot banks The funding needs (total loans minus total deposits) of Cypriot banks increased considerably between 212 and 215, from 2b in September 212 to 16.3b in December 215. The total loans of the banking system decreased from 7.4b in March 213 to 62.8b in December 215 (- 7.6b or -1.8%). b Source: CBC Key banking sector indicators For the full year 215, BOC reported an after tax loss of 438m, mainly attributed to the provisions of impairment of customer loans ( 959m), while HB posted a profit of 13m. HB reported 1.8m in impairment losses and provisions to cover credit risk. In the same period, the Coops registered losses of 166m, also as a result of increased provisions for impairment of loans and advances. Coops cumulative provisions increased to 3,486m compared to 2,968.5m at the end of 214. Alpha Bank Cyprus also recorded losses of 44.7m for 215, compared to losses of 83.1m in 214. The bank had reported quarterly profits for the third ( 8.3m) quarter and losses ( 37.9m) for the fourth quarter of the year. Eurobank Cyprus reported FY15 profits of 39.1m, after tax. Piraeus Bank (Cyprus) Ltd registered losses of 9.3m, down by 7% compared to those of the previous year ( 3.8m). Provisions decreased dramatically compared to the previous year (YE215: 24.4m, YE214: 43.7m). Based on the year end results of 214, the National Bank of Greece reported after tax profits of 6.5 m. Selected Indicators Liquidity Cash and trading assets (% of total assets) Profitability Operating profits 1 (% of total assets) Impairment (% of total assets) (.5) (4.9) (4.6) (3.9) (1.9) (2.3) Efficiency Cost to income ratio (%) Profit before provisions and impairments. Year end results unless otherwise stated Source: CBC, EC Banking Sector Dynamics May 216 3

4 Nominal euro area interest rates are now at historical lows, with the interest rate on the main refinancing operations close to % and the deposit facility rate in negative territory. Over the past year and a half the euro area yield curve has moved downwards and become flatter. (ECB, April 215).8 Net interest income As at December 215, the net interest income to total assets ratio, a key profitability ratio, stood at.66%, 45.2% higher than in March 213 (.45%), following a 8.5% increase in net interest income and 25.3% fall in total banking assets in the period. % Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Local authorised institutions operating in Cyprus 4 Banking Sector Dynamics May 216 Year ended 215 results (or latest available) ( m) BOC 1 Coops HB 1 RCB Bank Ltd 2 Total assets 23,127 14,37 7,397 8,3 Net loans 17,192 9,312 3,93 7,26 Deposits 14,181 12,744 6,139 7,29 Accumulated provisions 5,445 3,486 1,33 19 Profit/loss after tax (438) (166) NPEs 13,968 7,62 2,62 45 Key performance ratios (%) BOC Coops HB RCB Bank Ltd NPEs (% of gross loans) Net loans/deposits CET Cost/Income n/a 7 Coverage ratio of NPEs n/a Cost of risk (annualised) 4.3 n/a 2.3 n/a Net interest margin n/a 1 Ignoring classification as disposal group held for sale. 2 For RCB Bank Ltd calculated as total qualifying tier 1 capital over risk-weighted assets. 3 The minimum Common Equity Tier 1 capital ratio, under the relevant directives of the European Parliament and Council, is set at 8% (Pillar 1 Capital requirements) by the CBC (Capital Requirements Directive No.213/36/EU (CRD IV) and the Capital Requirements Regulation No.575/213 (CRR)). HB is subject to additional capital requirements (Pillar II add-ons) for risks which are not covered by the Pillar I capital requirements. HB and BOC must maintain on a consolidated basis and on an ongoing basis, an overall CET1 ratio of 11,25% and COOPs a CET1 ratio of 12.25% as per the European Central Bank s notification dated 2 November The ratios for BOC and HB are reported in the financial statements for YE215. For the COOPs, the ratio was calculated as Total Operating Expenses/Total Operating Income, as reported in the financial statements for YE Different banks may follow different policies with respect to the presentation of interest income on impaired loans, which may result in this ratio not being directly comparable. 6 The NIM for BOC and HB are reported in the financial statements for YE215. For the COOPs, the NIM was calculated as Net Interest Income/Total Assets, as reported in the financial statements for YE Data not available at time of preparation of the report. Source: BOC, CCB, HB, RBC Bank Ltd

5 Foreign authorised institutions and branches of foreign credit institutions ( m) Total assets Net loans Deposits Accumulated provisions Profit/loss after tax NPEs 2 Key performance ratios (%) NPEs 2 /Gross loans Net loans/deposits CET1 3 Cost/Income 4 Coverage ratio of NPEs 5 Cost of risk (annualised) Year ended 215 results (or latest available) ABCY Eurobank Cyprus Ltd National Bank of Greece (Cyprus) Ltd 1 Piraeus Bank (Cyprus) Ltd 2,589 4,132 1,742 1,45 2,37 1, ,852 3, (44.7) (9.3) 1, ABCY Eurobank Cyprus Ltd National Bank of Greece (Cyprus) Ltd Piraeus Bank (Cyprus) Ltd Net interest margin Figures for National Bank of Greece are based on YE214 results. 2 NPLs for Alpha Bank Cyprus and Piraeus Bank (Cyprus Ltd). 3 The CET1 ratio for Piraeus Bank Ltd is for the group. 4 The ratios for National Bank of Greece and Eurobank Cyprus are reported in the financial statements. For ABCY and Piraeus Bank the ratio was calculated as Total Operating Expenses/Total Operating Income, as reported in the financial statements for YE Different banks may follow different policies with respect to the presentation of interest income on impaired loans, which may result in this ratio not being directly comparable. 6 The Net Interest Margin (NIM) for National Bank of Greece is reported in the financial statements. For ABCY, the NIM was calculated as Net Interest Income/Total Assets, as reported in the financial statements for YE215. Source: ABCY, Eurobank Cyprus Ltd, National Bank of Greece (Cyprus) Ltd, Piraeus Bank (Cyprus) Ltd The deleveraging continues The Cypriot banking sector remains large, especially when seen in relation to the country s GDP. The total assets to GDP ratio remains higher than the EU-28 and euro area average. At 31 December 215, the bank assets to GDP ratio is about half of its peak of 88% in 21 despite decreasing over the period December 214 to December 215 by 15.6%. The decrease in total assets during 215 resulted from decreased loans and receivables (- 2.9b) as well as from a decrease in held-to-maturity investments (- 2.3b), and other assets (-.5b), while the cash and cash equivalents and available for sale financial investments increased by 2.7b and.6b respectively. According to the Memorandum of Understanding on Specific Economic Conditionality (MoU) signed with the Troika in March 213, the size of the Cypriot domestic banking sector (as a ratio to GDP), excluding branches and subsidiaries of foreign banks in Cyprus, will need to reach the EU average of around 3 times of the country s GDP by 218. Emergency Liquidity Assistance (ELA) Following the upgrade by Moody s of the BOC covered bonds credit rating to Baa3 from B1, the bank became eligible for Eurosystem credit operations (Moody s Investors Service, 29 September 215). Therefore, the bonds have been placed as collateral for accessing funding from the ECB and BOC has since raised a total of 55m for the repayment of ELA. BOC was able to repay a total of 1,6b of ELA funding post September 215, reducing its exposure to 3.3b by December 215, ELA decreased by 7.9b (-69.3%) from its peak levels of 11.4b in April 213. The ELA held by the Cypriot banking system as a whole decreased to 3.8b by December 215, down by 48.65% or 3.6b YoY. On May 26, 216, BOC announced the intention to fully repay ELA within 217. Banking Sector Dynamics May 216 5

6 Total assets BOC, Coops and HB continue to hold more than 5% of the total assets of the Cypriot banking system. The total assets of the banking sector on 31 December 215 stood at 73.2b. Out of BOC s total assets, which represent 32% (23.3b) of total banking system total assets, 73.9% ( 17.2b) were net loans and advances granted to customers. For the same period, HB held 1.1% ( 7.4b) of the total assets of the banking system, with 41.8% ( 3.1b) of those being net loans and advances. Coops held 19.6% ( 14.3b) of the total assets of the banking system and 65.1% ( 9.3b) of these were customer loans and advances. Importantly, total net loans decreased significantly compared to the 214 results mainly as a result of high impairment charges during 215. Total assets b 6 % of GDP Assets to GDP ratio GDP 1 4 Total assets Source: CBC, Eurostat Asset growth Other assets m Available for sale financial assets Held-to-maturity investments Loans and receivables Cash and cash equivalents Source: CBC 2 Aggregate data for all local and foreign banks operating in Cyprus, including the Coops. 6 Banking Sector Dynamics May 216

7 Assets in the banking system (as at 31/12/215) All Others 43.8% BOC 31.8% All Others 45.6% BOC 3.9% HB 1.1% Coops 14.3% HB 6.% Coops 17.5% Total assets (% of total assets of the consolidated banking system) Source: CBC, BOC, HB Total loans (% of total loans of the consolidated banking system) Loans to GDP ratio The total loans as at December 215 recorded a slight increase of 1.93% compared to December 214, reaching 62.8b. This resulted in an increase in the total loans to GDP ratio from 349% to 36%, which is still lower than the 213 high of 37%. Total loans and loans to GDP ratio b % of GDP Total loans Loans to GDP ratio Source: Eurostat, CBC, CyStat Banking Sector Dynamics May 216 7

8 Household and business loans In 215, total lending in Cyprus increased by 2.9% (or 1.7b) compared to 214, as a result of the increased demand from other financial intermediaries (4.1% or 3.5b) which outweighed the decrease in demand from households and business customers (-2.8% or -.7b and -3.8% or - 1.1b respectively) The business loans to GDP ratio decreased from 158.7% at YE214 to 152.9% at YE215. In the same period, the household loans to GDP ratio decreased from 141.1% to 137.4%. Loans to households and businesses % of GDP Business loans Household loans Source: CBC, Eurostat Total liabilities and deposits At the end of 215, BOC accounted for 3.4% ( 2.2b) of the total liabilities of the sector, with its total deposits accounting for 21.4% ( 14.2b) of the sector s total liabilities. At the same time, the Coops and HB accounted for 19.6% ( 13b) and 9.9% ( 6.6b) of the total sector liabilities respectively. Customer deposits accounted for 98% ( 12.7b) of the total liabilities of the Coops, 93.4% ( 6.1b) of the total liabilities of HB and 7.% (or 14.2b) of the total liabilities of BOC (16.3% (or 3.3b) of the total liabilities of BOC was the ELA funding). Since March 213, the total amount of deposits in the Cypriot banking system decreased by 27.9%. On a monthly basis, the first positive deposit inflow was recorded in April 214 (.4%). As of December 215, the total amount of deposits in the Cypriot banking system was 46b, down by 1.5b compared to November 215 (.3% YoY). The monthly decrease is mainly attributed to the decrease in deposits by non-eu residents ( 1.3b), while deposits by domestic residents fell by.2b and deposits by other euro area residents fell by.1b. As at YE215, HB recorded a Net Loan-to-Deposit ratio (LTD) of 5.4% down from 5.8% at YE214. Both net lending to customers and deposits decreased by 4% and 3.3% respectively compared to YE214. For the same period, the LTD ratio of BOC decreased to 121.2% (YE214:141.5%). The decrease is a result of both a decrease in loans (-7.7%) and an increase in deposits (7.7%). A similar pattern was observed for the LTD ratio of the Coops: loans decreased by 8% and deposits increased by 2.8% resulting in a decrease in the LTD ratio from 81.7% (YE214), to 73.1% (YE215). 8 Banking Sector Dynamics May 216

9 Total liabilities (as at 31/12/215) Liabilities by bank (as at 31/12/215) % 2 b BOC Coops HB All others BOC Coops* HB Total liabilities (% of the total liabilities of the consolidated banking sector) Customer deposits Amounts due to banks Total deposits (% of the total liabilities of the consolidated banking sector) Funding from Central Banks Other liabilities Source: BOC, HB, CCB, CBC Repurchase agreements Net Loan-to-Deposit ratio (LTD) % BOC HB Coops 1H213 YE213 1H214 YE214 1H215 YE215 Source: BOC, HB, CBC Deposit and lending rates Deposit interest rates in December 215 were 1.54% and 1.49% for households and businesses respectively. This represents an annual drop of 19 basis points (bps) for household rates and 14 bps for business rates. The lending rates for consumer credit fell by 15 bps from December 214 to reach 4.56% in December 215, while the lending rates for businesses for amounts up to 1.m fell by 98 bps over the same period, reaching 4.68%. The deposit-lending rate spreads remain at relatively high levels the Cypriot business lending rates remain the highest in the euro area, without adjusting for country specific credit risk. Since June 214 banks have been passing on the decline in their funding costs to their customers in the form of lower lending rates, which reached historical lows in the second half of 215. (ECB, April 215) Banking Sector Dynamics May 216 9

10 Non-performing loans Following the introduction of the new NPLs definition by the European Central Bank in December 214, the so-called nonperforming exposures (NPEs), fell from 47.5% ( 28.4b) to 45.4% ( 27.3b) of the total credit facilities granted by banks as at YE215. NPEs related to credit facilities granted to corporations were 13.8b (or 5.7% of the total), while those granted to private individuals were 12.7b (or 46.6% of the total). The remaining 2.7% (or.76b) are NPEs related to credit facilities granted to other financial corporations (.71b) and the general government (.5b) A large proportion of the NPEs can be attributed to the property development and construction sectors. As at December 215, NPEs related to facilities provided to the construction sector represented 19.7% of the total loans given to corporations, or 4.9b (18% of the total NPEs). In 215, NPE s related to the construction sector appear to have peaked in Q115 and have been slightly decreasing since (2Q215:-2.19% QoQ, 3Q215: -.16% QoQ, 4Q215: -2.45% QoQ or -4.21% YoY). Encouragingly, investment in the construction sector in 3Q215 grew for the first time in seven years (3Q215: 1.6% YoY, 3Q28: 7.7% YoY). Also, demand in the real estate sector, as measured in terms of title deeds and total transfers of sale registered at the Department of Lands and Surveys grew by 9.4% and 22% YoY respectively in 215. Taken together with the positive growth outlook for the Cypriot economy, the data suggest that NPE restructuring could be set to accelerate. A high level of non-performing loans in countries strongly affected by the euro area strains (such as Cyprus, Greece, Ireland, Italy, Portugal, Slovenia and Spain) has dampened profitability prospects. Such a constellation could hinder banks ability to provide new credit to the real economy. (ECB, November 215) NPEs in the Cypriot banking system NPEs in non-financial corporations (as at 31/12/215) 3 b % 35.6% Construction Retail trade Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec % 17.2% 16.5% Real estate activities ** Professional, scientific and technical services Others Source: CBC 1 Banking Sector Dynamics May 216

11 NPEs by bank A breakdown of the NPEs by bank as of the end of December 215 shows that BOC accounts for 51.2% of the total NPEs of the Cypriot banking system ( 14b), down by 1b compared to 214 ( 15b). In contrast, total NPEs increased for both the Coops and HB over the same period. The total NPEs of the Coops increased by.29b reaching 7.6b in December 215 while at the same time the NPEs of HB increased by.5b, reaching 2.6b. The loan portfolio of Eurobank Cyprus, stayed relatively stable for the period, as the NPEs of the bank increased by.6b, while the NPEs of ABCY decreased by.24b for the period. As at 31 December 215, the accumulated provisions for BOC were 5.4b, those of HB 1.3b, and those of the Coops and ABCY 3.5b and.8b respectively. NPEs in the Cypriot banking system (as at 31/12/215) Accumulated provisions as a fraction of total gross loans (as at 31/12/215).5% 6.4% 4.6% BOC % 51.2% HB Coops ABCY* Eurobank b Others 5 9.5% BOC Coops HB ABCY Eurobank Cyprus** Source: BOC, HB, CCB, ABCY, Eurobank Cyprus *Non-performing loans for ABCY **As at 3/6/215 for Eurobank Cyprus Gross loans Accumulated provisions Banking Sector Dynamics May

12 Banking system loan arrears resolution targets The latest data reported by the banks regarding the loan arrears resolution targets set by the CBC* indicate that overall targets have been met. 215 June Sept Dec Proposed sustainable solutions rate 1 Target n/a Actual Concluded sustainable solutions rate 2 Target n/a Actual Terms-being-met rate 3 Target n/a Actual Aggregate early-arrears cure rate 4 Target n/a Actual The percentage of balances of sustainable solutions proposed during the quarter in relation to the borrowers with loans exhibiting arrears of over 9 days at the beginning of the quarter. 2 The percentage of the balances of sustainable solutions concluded during the quarter in relation to the borrowers with loans exhibiting arrears of over 9 days at the beginning of the quarter. 3 The percentage of the balances of solutions concluded from 1/1/214 up to the end of the previous quarter which exhibited arrears of less than 8 days at the end of the reporting quarter. 4 The percentage of the amount of loans that presented early arrears (i.e days in arrears) at the beginning of the reporting quarter which were cured during the quarter (i.e. presenting no arrears at the end of the reporting quarter) by (i) being restructured with a sustainable repayment schedule and (ii) other effective means. The CBC has established targets regarding the resolution of loan arrears, aimed at incentivising banks to increase the volume and improve the quality of restructurings for loans presenting arrears over 9 days but also to take proactive action for the loans presenting arrears over 3 days to prevent them from becoming non-performing. The targets comprise four indicators that need to be applied to the whole loan portfolio and to sub-portfolios (residential mortgage loans to households, other loans to households, loans to non-financial corporations with total balances of up to 1m and loans to non-financial corporations with total balances of over 1m). Indicator 1 Indicator 2 Indicator 3 Indicator 4 Proposed sustainable solutions as a percentage of the loans presenting arrears over 9 days. Concluded sustainable solutions as a percentage of the loans presenting arrears over 9 days. Loans that have been restructured and present arrears of less than 8 days as a percentage of the total loans which have been restructured. Loans that presented arrears of 31 to 9 days at the beginning of the quarter but by the end of the quarter do not present any arrears (due to restructuring or other measures taken by the bank) as a percentage of the loans that presented arrears of 31 to 9 days at the beginning of the quarter. 12 Banking Sector Dynamics May 216

13 Latest credit agency ratings MOODY S Long-term deposit ratings Short-term deposit ratings Standalone BFSR* Date RCB Bank Ltd B3, stable outlook NP, stable outlook BCA of b3 (stable outlook) 2/11/215 BOC Caa3, stable outlook NP** BCA*** of caa3 28/5/215 HB Caa2, stable outlook NP BCA of caa3 12/6/215 Eurobank Ergasias S.A. Caa3, stable outlook NP BCA of Caa3 19/2/216 Alpha Bank A.E. Caa3, stable outlook NP BCA of Caa3 19/2/216 FITCH Long-term issuer default Short-term issuer default rating Viability rating Date rating BOC B- B b- 25/4/216 HB B B b 25/4/216 Eurobank Ergasias S.A. RD**** RD f 29/6/215 Alpha Bank A.E. RD RD f 29/6/215 *Bank financial strength, **Not Prime, ***Baseline credit assessment ****Restricted Default Source: BOC, HB, Moody s Investor Service Ltd, Fitch Developments PSPP eligibility of regional and local government bonds, implications for Cyprus On 3 December 215, the Governing Council of the ECB decided that euro-denominated marketable debt instruments issued by regional and local governments located in the euro area would become eligible for regular public sector purchase programme (PSPP) purchases by the respective national central banks. This decision referred only to those regional and local bonds that meet all other eligibility criteria, in particular the minimum rating requirement as stated in the European Central Bank (ECB) Decision on a secondary markets public sector asset purchase programme (Decision ECB/215/1). Expanding the set of securities eligible for PSPP purchases by adding regional and local government bonds further enhanced the flexibility of the programme, thereby supporting the continued smooth implementation of purchases. Purchases of such securities under the PSPP started in early 216, after the relevant legal acts had been amended. In order to be eligible for purchases under the PSPP, securities need to have a rating of at least credit quality step 3 in the Eurosystem s harmonised rating scale, as laid down in Decision ECB/215/1. In line with these rules, purchases of securities issued by central governments of euro area countries under a financial assistance programme can only be conducted if the application of the Eurosystem s credit quality threshold has been suspended by the Governing Council. In 215 this only applied to Cypriot government bonds, purchases of which took place during two periods: the first was from 3 to 17 July and the second was from 6 October to 4 November. These bond purchases followed the successful conclusion of the sixth and seventh reviews of Cyprus EU/IMF financial assistance programme. The suspension dates marked the start of new programme reviews. Investment fund sector The investment fund sector has undergone a rapid expansion since the global financial crisis amid an intense search for yield among global investors. Growth in this sector has complemented the traditional banking system and acted as an important buffer for the economy as bank credit contracted in recent years. At the same time, the potential impact on the wider financial system and real economy from adverse developments in the shadow banking sector has increased owing to its growing footprint in capital markets and stronger links within the sector as well as with other parts of the financial sector, including banks. The shadow banking sector has become an increasingly important provider of funding to the euro area economy. However, it also represents a key source of potential risk to the stability of the euro area financial system and thus requires close monitoring. While the investment fund sector in Cyprus is still at its infancy, the introduction of the Alternative Investment Funds framework has helped increase activity and investments in the sector. 13 Banking Sector Dynamics May 216

14 Abbreviations ABCY Alpha Bank Cyprus BCA Baseline Credit Assessment BFSR Bank Financial Strength Rating BOC Bank of Cyprus CBC Central Bank of Cyprus CCB Cooperative Central Bank CET1 Common Equity Tier 1 Coops CCB and Cooperative Credit Institutions CPB Cyprus Popular Bank CySEC Cyprus Securities and Exchange Commission EBA European Banking Authority EBRD-European Bank of Reconstruction and Development ECB European Central Bank EIB-European Investment Bank ELA Emergency Liquidity Assistance ESM European Stability Mechanism GDP Growth Domestic Product HB Hellenic Bank LTD-Loan-to-Deposit Ratio Mid-caps Medium-capitalisation enterprises MoF Ministry of Finance MoU Memorandum of Understanding on Specific Economic Policy Conditionality NPEs Non-performing exposures NP Not Prime NPL Non-performing loan QoQ Quarter on Quarter RCB-Russian Commercial Bank RD Restricted Default SMEs Small and Medium Size Enterprises SSM Single Supervisory Mechanism SREP-Supervisory Review and Evaluation Process TROIKA EC, ECB, IMF YE-Year end YoY Year on Year PSPP Public sector purchase programme References Cyprus Banking Institutions Annual Reports 215 Central Bank of Cyprus Aggregate Cyprus Banking Sector Data, Banking System Loan Arrears Resolution Targets, Financial Stability Indicators, Monetary and Financial Statistics Monthly Financial Statements 215 European Central Bank, Annual Report, Financial Stability Review 215 Eurostat, Gross Domestic Product at Current Prices Fitch Ratings Bank, Credit Ratings Moody s, Bank Credit Ratings Definitions NPL A loan is considered as non-performing when it shows arrears of more than 9 days or if has been restructured and at the time of restructuring presented arrears for a period of more than 6 days, regardless of tangible or other collateral. NPE According to the EBA standards, a loan is considered a nonperforming exposure if: (i) the debtor 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, for example in case of a write off, a legal action against the borrower, or bankruptcy, or (ii) the exposures are impaired i.e. in cases where there is a specific provision, or (iii) there are material exposures which are more than 9 days past due, or (iv) there are performing forborne exposures re-restructured within a 2 year probation period, or (v) there are performing forborne exposures under probation (2 years) that present more than 3 days past due after the restructuring date. 14 Banking Sector Dynamics May 216

15 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 216 Ernst & Young Cyprus Ltd. All rights reserved. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. This material has been produced by Emergo Wealth Ltd. ey.com/cy